Fifty-Eighth Annual Conference November 26 - November 28, 2006 The Westin Harbour Castle Hotel, Toronto Day 3 November 28, 2006 Key Developments Under International Trade and Investment Agreements Impacting Income and Sales Taxes John W. Boscariol John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 1
Harmful Use of Taxation Measures tax measures favouring domestic over foreign goods, services or investments tax measures subsidizing production or exports tax measures constituting expropriation of foreign investments John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 2
Relevant Trade and Investment Agreements the Agreements of the World Trade Organization North American Free Trade Agreement other regional and bilateral trade agreements bilateral investment treaties (or FIPAs) John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 3
Establishment of the WTO Uruguay Round negotiations (1986-1994), in force January 1, 1995 150 member countries accounting for over 90 percent of international trade scope and enforcement of obligations review of WTO Member trade policies rules-based approach John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 4
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 5
Income and Sales Tax Obligations at the WTO GATT 1994 Article III (national treatment on internal taxation and regulations) Agreement on Trade-Related Investment Measures Subsidies and Countervailing Measures Agreement General Agreement on Trade in Services John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 6
WTO Dispute Settlement integration of the dispute settlement process administration by Dispute Settlement Body Panel and Appellate Body reports establishment of Panel adoption of reports John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 7
WTO Dispute Settlement (cont d) implementation and enforcement prompt compliance with recommendations or rulings mutually acceptable compensation suspension of the application to the Member concerned of concessions or other obligations under the covered agreements John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 8
WTO Dispute Settlement (cont d) since January 1, 1995: 350 complaints notified to the WTO 98 Appellate Body and Panel Reports adopted 51 mutually agreed solutions 29 other settled or inactive cases presently 24 active panels compliance panels 18 Appellate Body and Panel Reports adopted 15 authorization of suspension of concessions presently 4 active panels John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 9
WTO Trade Policy Review Mechanism periodic review and reporting on trade legislation and policies of each WTO Member Canada s customs and trade policies are reviewed and reported on every two years transparency due diligence John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 10
Update on Key Tax Cases at WTO U.S. foreign sales corporation and extraterritorial income regimes European and Korean shipbuilding subsidies Mexican taxes on soft drinks John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 11
Update on Key Tax Cases at WTO (cont d) Chinese value-added taxes on integrated circuits U.S. (Florida) excise tax on processed orange and grapefruit products U.S. and European measures affecting trade in large civil aircraft Chinese measures on imports of auto parts John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 12
Foreign Investment Protection Agreements promotion of foreign investments reciprocal protection for investors ensures a stable predictable environment for inward and outward flows of FDI provides an alternative to domestic legal system or to diplomacy direct access to international arbitration John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 13
Foreign Investment Protection Agreements (cont d) key element - dispute settlement investor-state dispute mechanism - investors may sue host country governments for losses or damages arising out of a breach of the FIPA/BIT up until 1994, developing countries or NICs 21 FIPAs currently in force John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 14
Foreign Investment Protection Agreements (cont d) investor-state dispute mechanism (NAFTA Chapter 11, Part B) investors may sue NAFTA country governments for losses or damages arising out of a breach of NAFTA Chapter 11 John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 15
Foreign Investment Protection Agreements (cont d) submission of claim before arbitral tribunal the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules the International Centre for Settlement of Investment Disputes (ICSID) Convention the Additional Facility Rules of ICSID John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 16
Foreign Investment Protection Agreements (cont d) basic investor protection obligations national treatment most favoured nation treatment minimum standard of treatment (fair and equitable) performance requirements expropriation and compensation John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 17
Foreign Investment Protection Agreements (cont d) exceptions and carve-outs e.g., subsidies, cultural industries, certain tax measures John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 18
Foreign Investment Protection Agreements (cont d) statistical trends from 300 BITs in 1990 to 2500 today by April 1998 only 14 cases had been brought before ICSID involving BIT claims only two awards and two settlements had been issued John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 19
Foreign Investment Protection Agreements (cont d) since late 1990s, significant increase in number of BIT cases cumulative number of BIT cases up to at least 229 by end of 2005-135 before ICSID - 67 before UNCITRAL - 27 before other arbitration forums John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 20
Foreign Investment Protection Agreements (cont d) Known BIT Arbitrations (cumulative and newly instituted cases, by year-end 2005) Source: UNCTAD John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 21
Treatment of Taxation Measures Under Investments Agreements NAFTA Chapter 11 private investor state challenges to taxation measures reference to competent authorities damages by reason of, or arising out of breach John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 22
Treatment of Taxation Measures Under Investment Protection Agreements (cont d) Challenging tax measures under Canada s bilateral investment agreements old model FIPAs double taxation conventions excluded John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 23
Treatment of Taxation Measures Under Investment Protection Agreements (cont d) NAFTA-model FIPAs breach of contract with government expropriation investments or returns of investors John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 24
Update on Key Investment Disputes Involving Tax Measures EnCana and Occidental - Ecuadorian denial of value-added tax refunds Feldman - Mexican value-added tax rebates on cigarettes Enron and Ponderosa - Argentinean stamp taxes John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 25
Update on Key Investment Disputes Involving Tax Measures (cont d) Corn Products International and Archer Daniels Midland - Mexican taxes on soft drinks John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 26
Key Issues for Tax Advisors growing impact on development of tax policy and legislation tools to address harmful tax measures discrimination subsidization expropriation scope and enforcement John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 27
Key Issues for Tax Advisors (cont d) streamlining of Model FIPA tax provisions ongoing negotiations FIPAs Peru China India internatioanl trade agreements John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 28
Key Issues for Tax Advisors (cont d) future trade and investment agreement partners relationship with bilateral tax conventions John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group - Slide No. 29