WTO Ruling Erases Tax Loophole For U.S. Companies

The U.S. has suffered a serious setback following a decision by the World Trade Organization (WTO) that outlaws a U.S. tax loophole for exports. The ruling, the most important for the U.S. ever issued by WTO, has been criticized by Charlene Barshefsky, the U.S. trade representative. But she said that, while contesting the decision, Washington will accept its WTO obligations and does not want to jeopardize its ties with its European trading partners. The U.S. is now under orders from WTO to end a system that enables U.S. multinational companies to avoid U.S. taxes by channeling sales through offshore subsidiaries, principally in the Caribbean. The 15-nation European Union (EU) claims that the tax loophole enabled Boeing Co. alone to save $130 million in taxes in 1998, giving it a critical advantage against its European rival Airbus Industrie. Total savings for U.S. corporations run into billions of dollars. WTO has ruled that these tax privileges must be scrapped by Oct. 1, five weeks before the U.S. presidential elections. In view of the political sensitivity of the issue, that deadline could be extended. While Boeing and Microsoft are the main beneficiaries of the tax gift, European companies such as DaimlerChrysler take advantage of it through their American subsidiaries.