[UPDATE: WTO Panel Grants Panama Victory in Argentine Financial Services Case….more here.]
In the absence of a global body to manage the international tax agenda – and no, the OECD, even if backed by the G-20 does not count – can the WTO fill the void?
The WTO is after all a proper, truly representative organisation styled after the one-country-one vote fashion that, despite the shortcomings of this United Nations model, still represents democracy in action.
Why ask the question in the first place when the WTO deals exclusively with trade related matters in both goods and services? The simple reason is that tax and trade are two sides of the same coin. Without trade there is not much to tax, and without tax, competitive tax that is, there is not much by way of trade in financial services.
It’s not surprising therefore that Panama, like the EU and the US before it, has sought to trigger the WTO’s dispute settlement mechanism to address a matter of concern not only to this prominent Central American financial centre, but one that plagues a number of WTO member states also heavily invested in trade in financial services.
After consultations failed to resolve the issue earlier this year, on May 13th, Panama formally requested the creation of a Dispute Settlement Panel to determine, among other things, whether Argentina’s tax haven blacklist is contrary to the WTO agreement because this very common form of tax discrimination, “impairs the conditions of competition between like services and foreign suppliers of like services, by according less favourable treatment to the services and service suppliers of the listed countries, in a manner inconsistent with GATS Article II:1.”
Like many other domestic blacklists, Argentina’s makes the export of financial services from listed countries more expensive, and by extension less attractive, than exports from countries, not included on the blacklist, because of the 35% profits tax per transaction imposed on Argentines conducting trade with blacklisted countries. This according to Panama’s brief amounts to discrimination of a kind not allowed by the WTO.
The fact that just over two weeks after Panama made its request for the constitution of a Dispute Settlement Panel, Argentina repealed the offending blacklist, which it maintained for 13 years, does not affect the validity of the suit.In fact, the dispute is even more relevant because the replacement list is framed as a positive listing which, by the exclusion of some countries, still gives rise to tax discrimination.
Ultimately, the question that Panama is asking the WTO to resolve is whether tax measures applied by some WTO members to other blacklisted members distort trade by deliberately affecting the profitability of those entities involved in that trade, in this case financial services, and as a result contravene the anti-discriminatory rules of international trade law.
Could the much maligned WTO undo with one decision what the membership of that other ‘pretend’ international body has spent the last twenty years building?
For more on Argentina’s repealed blacklist:http://services.taxanalysts.com/taxbase/wwnews.nsf/Recent+News/A2F3986B881331E685257B7D000602D8?OpenDocument