Ending a four-year battle, the World Trade Organisation (WTO) has announced in its final ruling that the US foreign sales corporation act amounts to an illegal subsidy. This follows an appeal by the USA from a WTO panel decision last August that reached the same conclusion.

The law in dispute has given US companies a $4 billion annual tax break on foreign sales. As a result, Boeing's tax savings have steadily climbed with overseas aircraft sales to almost $300 million a year. Losing this could mean higher prices for foreign buyers.

Congress amended the foreign sales law in November 2000 in an effort to satisfy complaints from the European Commission (EC). Now that the WTO has finally ruled that it is still illegal, lawmakers face the tough task during an election year of devising a replacement. Republican Bill Thomas, who chairs the US House of Representatives subcommittee on tax legislation, argues that the law should be replaced with a "territorial" system like Europe's, which generally taxes only domestic earnings.

The WTO expects to announce by the end of April what sanctions the EC may impose, but officials on both sides of the Atlantic are eager to avoid any trade war.

Source: Airline Business