The World Trade Organization (WTO) issued a decision today that will significantly affect multilateral initiatives on tax transparency, including the work of the Global Forum. In its decision in Argentina – Measures Relating to Trade in Goods and Services, the WTO Appellate Body ruled that a set of defensive tax measures maintained by Argentina are not inconsistent with the General Agreement on Trade in Services (GATS). The Appellate Body's decision rejected claims by Panama that these types of measures are inconsistent with the obligations of most-favored nation and national treatment under the GATS. The ruling effectively ensures that WTO Members may continue to maintain laws and regulations that protect national tax revenues against the harmful consequences of taxpayers engaging in transactions with non-transparent jurisdictions. Steptoe’s Pablo Bentes, managing director of international trade and investment, and partner Matthew Yeo represented the government of Argentina in this dispute.
The decision brings to an end a case that Panama launched in 2013 against eight different measures maintained by Argentina. From the way in which Panama structured and pursued its claims, it was clear that Panama sought a ruling by the WTO that defensive tax measures are inconsistent per se with the GATS. Had Panama prevailed in these claims, the ruling would have cast doubt on the WTO consistency of any type of tax law or regulation that draws distinctions based on whether a transaction takes place with an entity located in a jurisdiction that either does or does not adhere to international standards of effective information exchange. This would have included most types of "black list" and "white list" systems maintained by OECD members and other countries.
While the timing of today's decision was dictated by the WTO's procedures, the significance of the decision could hardly be more apparent in light of the Panama Papers. The Panama Papers have drawn global attention to the use of non-transparent jurisdictions as a means of engaging in tax evasion, money laundering, and other unlawful activities. Interest in the use of defensive tax measures against these types of jurisdictions is certain to increase in the months ahead. The WTO's decision makes clear that these types of measures can be designed and implemented in a manner that is fully consistent with international trade rules. While Panama had sought to use the WTO to bring a collateral attack on the use of defensive tax measures, that strategy has not only failed, but backfired.