The measures directed at simulated transactions between third parties also cover legitimate transactions? Panama alleges that to show that a measure secures compliance with a law or regulaion, a risk of non- compliance with such laws must also be identified. Panama submits that the Panel found that measures 1, 2, 3, and 4 are aimed at discourage simulated transactions between related parties, however, the Panel failed to consider whether these related-party transactions are inconsistent or pose a threat of non compliance with relevant provisions of Argentine laws. Resultantly, without such finding, the Panel had no legal basis to conclude that these measures (1, 2, 3, and 4) are designed to secure compliance with the provisions of the identified Argentine laws.
The Appellate Body considers that the Panel did not find that the types of practices that measures 1, 2, 3, and 4 are built to discourage are only simulated transactions between parties. But the Panel identified practices broadly as “transactions which cover up harmful tax practices”. So, the Panel Report didn’t support Panama’s assumption upon which Panama’s argument is based and therefore rejected this argument. Further, the Appellate Body notes that Panama asserted that the measures 1,2,3, and 4 apply both to transactions with legitimate purposes and to fraudulent ones. The panel held that these measures must be designed to cover all transactions because they apply ex- ante. Appellate Body agreed with Panel’s view, stating that “if the Argentine authorities could distinguish ex ante between transactions with a legitimate purpose and those which involve fraudulent maneuvers, the measures in question would not be necessary”.
Panama further claims that the measures 1,2,3, and 4 are overly broad in addressing tax evasion, and failed to consider that measure 2 is overly broad because it includes certain transactions excludes by measure 1, and has implications for collection of sales tax and internal taxes. The appellate body, however, is of the view that while measure 2 may have a broader scope than measure 1 does not preclude a finding that it is designed to secure compliance with Article 1 and 5 of the Gains Tax law.
III. Did the Panel err in finding that the measures are “necessary” to secure compliance with the relevant laws or regulations?
Panama asserts that the panel erred in finding that the measures 1,2,3,4,7 and 8 are “necessary” to secure compliance with the relevant Argentine laws or regulations under Article XIV(c) of the GATS. Panama makes the following allegations:
III.1Did the panel err in its analysing the evidentiary basis? Firstly, according to Panama there is no evidentiary basis that measures pursue the objectives that have been hailed by Argentina. In response to this, the Appellate Body a challenge to the panel’s analysis of evidence may not be invoked without resorting to article 11 DSU.
III.2 Did the Panel wrongly consider objectives in its weighing and balancing exercise? Secondly, Panama alleges that while assessing the contribution of measures attaining objectives of the relevant laws or regulations, the Panel takes into account mere objectives of the laws rather then on whether they secure compliance with specific provisions of laws or regulations. The Appellate Body agrees with Panama to the extent that in the weighing and balancing exercise, the extent to which a measure contributes to the realisation of the end pursued, the securing of compliance with the law or regulation is at issue. However the Appellate Body is quick to add that it is not to say that the objective of the regulation protected is irrelevant to the analysis of a measure’s contribution is irrelevant.
The Appellate Body notes that by conducting an examination of the contribution of these measures 1,2,3,4 to securing compliance with the obligation to establish properly the tax base subject to the gains tax in accordance with Articles 1 and 5 of the Gains Tax Law, the Panel fulfils its obligation. With respect to measure 7, by examining the contribution to secure compliance with Article 188 of the resolution on Companies Incorporated Abroad and Article 118.3 of the Commercial Companies Law in its Article XIV(C) requires certain documents to be submitted in order to register a branch wth the Public Trade register of the City of Buenos Aires, the Panel fulfils its requirement.
Thus despite reservations, the Appellate Body holds that the panel appropriately analysed the contribution made by measures 1,2,3,4 and 7 to securing compliance with specific obligations. The Appellate Body also sounds a note of caution stating that an analysis of necessity, a panel’s job is to assess in a qualitative or quantitative manner, the extent of the measure’s contribution to the end pursued, rather than merely ascertaining whether or not the measure makes any contribution. Hence, the greater the contribution, the more easily a measure might be considered necessary.
III.3 Did the Panel correctly examine the trade-restrictiveness? Next, Panama argues that the Panel presumes lack to trade restrictive effect in the event the measure does not constitute a ban. The Appellate Body disagrees, ruling that that this is not what the panel has done, and has analysed the structure, operation and the effect of each measure and reached separate findings on the trade restrictiveness of each measure and concluded that measures 1,2, and 3 have a “limited restrictive effect on international trade in services”. Thus contrary to what Panama contends the Panel takes a more nuanced position with respect to the trade- restrictiveness of each measure.
there are several takeaways from the Appellate Body’s analysis under section XIV(c). In the wake of the Panama Papers leaks and the global outcry against tax evasion, the Appellate Body appears to Argentina’s regulatory objective to prevent tax evasion and money laundering. Moreover, while the Appellate Body appears to allow seemingly wide latitude in adopting and implementing measures taken for prudential reasons by Argentina. In addition to that the approach taken by the Appellate Body seems to indicate that it is keen to follow the GATT jurisprudence when it comes to Article XIV(c) analysis but also recognises the peculiarities of the finical services sector. Lastly, it is interesting to note that while Argentina had asserted that the measures are applied in accordance with the chapeau, none of the parties challenged the Panel findings challenged it before the Appellate Body.
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