Foreign Sales Corporations

Résumé du document

From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for a better organisation in the international trade. In 1995 the WTO was created, it's a kind of reform of that system but it preserves the same target: to solve the international conflicts. This creation marked the biggest reform of international trade after the Second World War. There are 150 member states in the organization, the latest to join being Vietnam on January 11, 2007. At present, WTO is régi par un Mémorandum d'accord issu de l'Uruguay Round, il repose sur des règles de procédure et des calendriers précis.
So apart from hosting negotiations on trade rules, one of the principal functions of the WTO is to act as an arbiter of disputes between member countries. There is a part of the WTO named Dispute Stellment Body (DSB) which have to solve all the conflicts. All the members can bring disputes to the WTO's Dispute Stellment Body if they think another member has breached WTO rules. Disputes are heard by a Dispute Settlement Panel, usually made up of three trade officials. One of them is choosen by the WTO, the second one by the defendant and the last one by the Complainant. The panels meet in secret and are not required to alert national parliaments that their laws have been challenged by another country. Since his creation the biggest case that the WTO has known was between the European Communities and the United States. This case is named Tax Treatment for Foreign Sales Corporations and it is a very long and complex story. To understand this case we have to return in 1971, this date is not the begining of that story but at this time the United States have decided to creat the domestic international sales corporation which is a domestic corporation created by the Revenue Act (1971) to encourage exports and improve the balance of trade. A major benefit is the deferment of 50% of a DISC's income for a long period of time. In 1971 the United States know a difficult moment because there was a fall of export so they decided to use the DISC system to solve their problem.
However this Americain law was disputed in 1974 by the European Community which ask for the meeting of a panel of GATT in order to solve the question. In 1976 the DISC are declared illegal subsidy to US export. Thus, in 1984, the United States created the FSC ( Foreign Sales Corporations) to take the place of the hold system. These FSC are companies cash that few shareholders, they are created and established abroad or in the possessions of the United States. To become a FSC a company must obligatorily accepted the conditions expressed in sections 921 to 927 of the American Code of Taxes. A company can take advantage of the system if the management and the economic processes related to the transactions are carry out the United States. Only the small FSC don't have to conform to this conditions. Small FSC don't need to do their transaction abroad.
So the definition of a FSC is not illegal, however the dissension between the European Communities and the United States relates more particularly to the taxation. In United States In the case of foreign companies related to American companies, the general rule is that a American company is subjected to an imposition on the incomes carried out by its foreign subsidiary company only when these incomes are transferred to the American head office in the form of a dividend. However, according to charges' of the European Communities, this kind of taxation which generally prevail in the United States are fad out when we talk about FSC.

Extraits

[...] EC underline that the illegal export subsidies are made during the exemption of the benefit. Indeed, if company A and B are Americans , the benefit of company B must be taxed by the American State when it pass the border. But it's not the case because the American code of taxes stipulates in article 921 that the incomes with export are regarded as incomes of foreign source which do not a link with the control of a commercial or industrial activity in the United States. [...]

[...] Foreign Sales Corporations Introduction From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for a better organisation in the international trade. In 1995 the WTO was created, it's a kind of reform of that system but it preserves the same target: to solve the international conflicts. This creation marked the biggest reform of international trade after the Second World War. There are 150 member states in the organization, the latest to join being Vietnam on January At present, WTO is régi par un Mémorandum d'accord issu de l'Uruguay Round, il repose sur des règles de procédure et des calendriers précis. [...]

[...] So it's that why the American position cannot be rejected. However, concerning counter measures taken by the EC, it seems legitimate that US would be punish because theyn don't respect the rules. The decisions taken by OMC must be carried out if we want to have a credible WTO. According to their first judgment the United States had to change the legislation of the FSC before November the first To prolong this deadline in a unilateral way is a sign of provocation towards OMC and the EC. [...]

[...] To be clear, the EC think that the United States had created a system of illegal export subsidy. So in the first time we have a company A based in the United States. This company has got a company B (FSC) in a foreign country or an American possession of the cases according to the EC). Generally the company B is placed in a fantasy island in order to reduce its impositions. In the second time, company A sells at the company B in lower part of the price of the market. [...]

[...] The system panel/appeal is reproduced three times in all. In the appellate body report of call, distributed on February the United States are again the losers of this conflict. Thus it is interesting to study a little more in-depth this case, to explain the arguments of the two parts, in order to understand the stakes of the most important dispute in the history of the WTO.In the first part, we will see if are fictitious, this point constitutes one of the main arguments for the EC, and on the second time we are going to talk about the topic of the illegal subsidy. [...]