Trade war fears as US tax scheme barred by world trade body
The World Trade Organisation has ruled against the US in a tax case that could lead to strained trade relations between the US and Europe.
It ruled that a US tax programme affecting hundreds of billions of dollars of US exports violated international rules.
The decision could force the US Congress to change current law to bring the 16-year-old US Foreign Sales Corporations (FSC) scheme in line with the world trade watchdog’s rules.
If US authorities refuse, they could be obliged to pay compensation to the European Union.
The US reacted stongly, with trade representative Charlene Barshefsky commenting: ‘We strongly disagree with the appellate body’s ruling. Our view remains that the FSC is completely consistent with US WTO obligations.’
FSCs are usually subsidiaries of US corporations located in tax havens such as the Virgin Islands, Barbados or Guam. US firms exporting through them qualify for income tax relief. In addition, dividends paid by FSCs to parent companies are not subject to US tax.