Essay: Appellate Body’s analysis under section XIV(c)

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  • Published on: July 6, 2019
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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.

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