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Report of the Panel

CASES CITED IN THESE REPORTS

Short TitleFull Case Title and Citation
Argentina – Financial Services Appellate Body Report, Argentina – Measures Relating to Trade in Goods and Services, WT/DS453/AB/R and Add.1, adopted 9 May 2016
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, p. 515
Argentina – Hides and Leather Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and Import of Finished Leather, WT/DS155/Rand Corr.1, adopted 16 February 2001, DSR 2001:V, p. 1779
Argentina – Import Measures Panel Reports, Argentina – Measures Affecting the Importation of Goods, WT/DS438/R and Add.1 / WT/DS444/R and Add.1 / WT/DS445/R and Add.1, adopted 26 January 2015, as modified (WT/DS438/R) and upheld (WT/DS444/R / WT/DS445/R) by Appellate Body Reports WT/DS438/AB/R / WT/DS444/AB/R / WT/DS445/AB/R
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, p. 3327
Australia – Salmon (Article 21.5 – Canada) Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse to Article 21.5 of the DSU by Canada, WT/DS18/RW, adopted 20 March 2000, DSR 2000:IV, p. 2031
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, p. 167
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, p. 1527
Brazil – Retreaded Tyres Panel Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/R, adopted 17 December 2007, as modified by Appellate Body Report WT/DS332/AB/R, DSR 2007:V, p. 1649
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, p. 2985
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043
Canada – Dairy Appellate Body Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products, WT/DS103/AB/R, WT/DS113/AB/R, and Corr.1, adopted 27 October 1999, DSR 1999:V, p. 2057
Canada – FIRA GATT Panel Report, Canada – Administration of the Foreign Investment Review Act, L/5504, adopted 7 February 1984, BISD 30S/140
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, p. 449
Canada – Pharmaceutical Patents Panel Report, Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, adopted 7 April 2000, DSR 2000:V, p. 2289
Canada – Renewable Energy / Canada – Feed-in Tariff Program Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I, p. 7
Canada – Renewable Energy / Canada – Feed-in Tariff Program Panel Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/R and Add.1 / WT/DS426/R and Add.1, adopted 24 May 2013, as modified by Appellate Body Reports WT/DS412/AB/R / WT/DS426/AB/R, DSR 2013:I, p. 237
Canada – Wheat Exports and Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/AB/R, adopted 27 September 2004, DSR 2004:VI, p. 2739
Canada – Wheat Exports and Grain Imports Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/R, adopted 27 September 2004, upheld by Appellate Body Report WT/DS276/AB/R, DSR 2004:VI, p. 2817
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/AB/R, adopted 23 October 2002, DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of Automobile Parts, WT/DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, adopted 12 January 2009, DSR 2009:I, p. 3
China – Auto Parts Panel Reports, China – Measures Affecting Imports of Automobile Parts, WT/DS339/R, Add.1 and Add.2 / WT/DS340/R, Add.1 and Add.2 / WT/DS342/R, Add.1 and Add.2, adopted 12 January 2009, upheld (WT/DS339/R) and as modified (WT/DS340/R / WT/DS342/R) by Appellate Body Reports WT/DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, DSR 2009:I, p. 119
China – Publications and Audiovisual Products Appellate Body Report, China –Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19 January 2010, DSR 2010:I, p. 3
China – Publications and Audiovisual Products Panel Report, China –Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/R and Corr.1, adopted 19 January 2010, as modified by Appellate Body Report WT/DS363/AB/R, DSR 2010:II, p. 261
China – Rare Earths Appellate Body Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, adopted 29 August 2014, DSR 2014:III, p. 805
China – Rare Earths Panel Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS431/R and Add.1 / WT/DS432/R and Add.1 / WT/DS433/R and Add.1, adopted 29 August 2014, upheld by Appellate Body Reports WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, DSR 2014:IV, p. 1127
China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012, DSR 2012:VII, p. 3295
China – Raw Materials Panel Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/R, Add.1 and Corr.1 / WT/DS395/R, Add.1 and Corr.1 / WT/DS398/R, Add.1 and Corr.1, adopted 22 February 2012, as modified by Appellate Body Reports WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, DSR 2012:VII, p. 3501
Colombia – Ports of Entry Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry, WT/DS366/R and Corr.1, adopted 20 May 2009, DSR 2009:VI, p. 2535
Colombia – Textiles Appellate Body Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear, WT/DS461/AB/R and Add.1, adopted 22 June 2016
Colombia – Textiles Panel Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear, WT/DS461/R and Add.1, adopted 22 June 2016, as modified by Appellate Body Report WT/DS461/AB/R
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 3243
EC – Asbestos Panel Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R and Add.1, adopted 5 April 2001, as modified by Appellate Body Report WT/DS135/AB/R, DSR 2001:VIII, p. 3305
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, p. 591
EC – Bananas III Panel Reports, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/R/ECU (Ecuador) / WT/DS27/R/GTM, WT/DS27/R/HND (Guatemala and Honduras) / WT/DS27/R/MEX (Mexico) / WT/DS27/R/USA (US), adopted 25 September 1997, as modified by Appellate Body Report WT/DS27/AB/R, DSR 1997:II, p. 695 to DSR 1997:III, p. 1085
EC – Chicken Cuts Appellate Body Report, EuropeanCommunities – Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted 27 September 2005, and Corr.1, DSR 2005:XIX, p. 9157
EC and certain member States – Large Civil Aircraft Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011, DSR 2011:I, p. 7
EC – Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R, adopted 18 June 2014, DSR 2014:I, p. 7
EC – Seal Products Panel Reports, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/R and Add.1 / WT/DS401/R and Add.1, adopted 18 June 2014, as modified by Appellate Body Reports WT/DS400/AB/R / WT/DS401/AB/R, DSR 2014:II, p. 365
EC – Tariff Preferences Appellate Body Report, European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/AB/R, adopted 20 April 2004, DSR 2004:III, p. 925
EC – Tariff Preferences Panel Report, European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/R, adopted 20 April 2004, as modified by Appellate Body Report WT/DS246/AB/R, DSR 2004:III, p. 1009
EEC – Animal Feed Proteins GATT Panel Report, EEC – Measures on Animal Feed Proteins, L/4599, adopted 14 March 1978, BISD 25S/49
EEC – Parts and Components GATT Panel Report, European Economic Community – Regulation on Imports of Parts and Components, L/6657, adopted 16 May 1990, BISD 37S/132
Guatemala – Cement I Panel Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/R, adopted 25 November 1998, as reversed by Appellate Body Report WT/DS60/AB/R, DSR 1998:IX, p. 3797
India – Agricultural Products Appellate Body Report, India – Measures Concerning the Importation of Certain Agricultural Products, WT/DS430/AB/R, adopted 19 June 2015
India – Autos Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R, WT/DS175/R, and Corr.1, adopted 5 April 2002, DSR 2002:V, p. 1827
India – Solar Cells Appellate Body Report, India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R and Add.1, adopted 14 October 2016
India – Solar Cells Panel Report, India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R and Add.1, adopted 14 October 2016, as modified by Appellate Body Report WT/DS456/AB/R
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and Corr.2, adopted 23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Italy – Agricultural Machinery GATT Panel Report, Italian Discrimination Against Imported Agricultural Machinery, L/833, adopted 23 October 1958, BISD 7S/60
Japan – Agricultural Products II Appellate Body Report, Japan – Measures Affecting Agricultural Products, WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, p. 277
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
Japan – Alcoholic Beverages I GATT Panel Report, Japan – Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, L/6216, adopted 10 November 1987, BISD 34S/83
Japan – Film Panel Report, Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, p. 1179
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, p. 3
Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, p. 5
Mexico – Corn Syrup (Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSUby the United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, p. 6675
Russia – Tariff Treatment Panel Report, Russia – Tariff Treatment of Certain Agricultural and Manufacturing Products, WT/DS485/R, Corr.1, Corr.2, and Add.1, adopted 26 September 2016
Spain – Soyabean Oil GATT Panel Report, Spain – Measures Concerning Domestic Sale of Soyabean Oil – Recourse to Article XXIII:2 by the United States, L/5142, 17 June 1981, unadopted [80SOYABN]
Thailand – Cigarettes (Philippines) Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV, p. 2203
Thailand – Cigarettes (Philippines) Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/R, adopted 15 July 2011, as modified by Appellate Body Report WT/DS371/AB/R, DSR 2011:IV, p. 2299
Turkey – Rice Panel Report, Turkey – Measures Affecting the Importation of Rice, WT/DS334/R, adopted 22 October 2007, DSR 2007:VI, p. 2151
US – 1916 Act Appellate Body Report, United States – Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000:X, p. 4793
US – Carbon Steel Panel Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany, WT/DS213/R and Corr.1, adopted 19 December 2002, as modified by Appellate Body Report WT/DS213/AB/R, DSR 2002:IX, p. 3833
US – Clove Cigarettes Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, adopted 24 April 2012, DSR 2012: XI, p. 5751
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009, DSR 2009:III, p. 1291
US – COOL Appellate Body Reports, United States – Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/AB/R / WT/DS386/AB/R, adopted 23 July 2012, DSR 2012:V, p. 2449
US – COOL (Article 21.5 – Canada and Mexico) Appellate Body Reports, United States – Certain Country of Origin Labelling (COOL) Requirements – Recourse to Article 21.5 of the DSU by Canada and Mexico, WT/DS384/AB/RW / WT/DS386/AB/RW, adopted 29 May 2015
US – COOL (Article 22.6 – United States) Decisions by the Arbitrator, United States – Certain Country of Origin Labelling (COOL) Requirements – Recourse to Article 22.6 of the DSU the United States, WT/DS384/ARB and Add.1 / WT/DS386/ARB and Add.1, circulated to WTO Members 7 December 2015
US – Countervailing and Anti-Dumping Measures (China) Appellate Body Report, United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R and Corr.1, adopted 22 July 2014, DSR 2014:VIII, p. 3027
US – Corrosion-Resistant Steel Sunset Review Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, p. 3
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, p. 1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55
US – FSC (Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body Report WT/DS108/AB/RW, DSR 2002:I, p. 119
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)
US – Gambling Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/R, adopted 20 April 2005, as modified by Appellate Body Report WT/DS285/AB/R, DSR 2005:XII, p. 5797
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, p. 3
US – Gasoline Panel Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/R, adopted 20 May 1996, as modified by Appellate Body Report WT/DS2/AB/R, DSR 1996:I, p. 29
US – Large Civil Aircraft (2nd complaint) Appellate Body Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012, DSR 2012:I, p. 7
US – Large Civil Aircraft (2nd complaint) Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Offset Act (Byrd Amendment) Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003, DSR 2003:I, p. 375
US – Poultry (China) Panel Report, United States – Certain Measures Affecting Imports of Poultry from China, WT/DS392/R, adopted 25 October 2010, DSR 2010:V, p. 1909
US – Section 211 Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations Act of 1998, WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, p. 589
US – Section 110(5) Copyright Act (Article 25) Award of the Arbitrators, United States – Section 110(5) of the US Copyright Act – Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1, 9 November 2001, DSR 2001:II, p. 667
US – Section 337 Tariff Act GATT Panel Report, United States Section 337 of the Tariff Act of 1930, L/6439, adopted 7 November 1989, BISD 36S/345
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, p. 2755
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, p. 571
US – Tobacco GATT Panel Report, United States – Measures Affecting the Importation, Internal Sale and Use of Tobacco, DS44/R, adopted 4 October 1994, BISD 41S/131
US – Tuna II (Mexico) Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, adopted 13 June 2012, DSR 2012:IV, p. 1837
US – Tuna II (Mexico) (Article 21.5 – Mexico) Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products – Recourse to Article 21.5 of the DSU by Mexico, WT/DS381/AB/RW and Add.1, adopted 3 December 2015
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1, DSR 1997:I, p. 323

ABBREVIATIONS

AbbreviationDescription
ADE Executive Declaratory Act
BCI Business Confidential Information
CAPDA Committee of Research and Development Activities of Amazonia
CATI Committee of Technology and Information
CDMA Code Division Multiple Access
CIDE Contribution of Intervention in the Economic Domain
CIF Cost, Insurance & Freight value
COFINS contribution Contribution to Social Security Financing
COFINS importation Contribution to Social Security Financing applicable to Imports of Goods or Services
CONAMA Brazilian National Environmental Council
CO2 Carbon Dioxide
CST Tax Situation Code
DENATRAN National Motor Vehicle and Traffic Department
DERAT Tax Administration Federal Revenue Department Branch
DRF Federal Revenue Department Branch
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
ECA Economic Complementation Agreement
FM Frequency Modulation
FNDCT National Fund for Scientific and Technological Development
GATT 1994 General Agreement on Tariffs and Trade 1994
GPS Global Positioning System
GPRS General Packet Radio Service
GSM Global System for Mobile Communication
GT-PPB Interministerial Technical Group of PPB's Assessment
GTI-PADIS Interministerial Technical Group to Evaluate Lawsuits in the context of the PADIS programme
ICMS Tax on the Circulation of Goods and on Inter-State and Inter-City Transport and Communications Services
ICT Information and Communication Technology
ICT products Information and Communication Technology, Automation and Related Goods
IVA An Indirect Tax similar to a Value-Added Tax
INMETRO National Institute of Metrology, Quality and Technology
INOVAR-AUTO Programme to Promote Technological Innovation and Densification of the Productive Chain of Motor Vehicles
IPI tax Tax on Industrialised Products
LAIA Latin American Integration Association
LBS Location Based Service
LCD Liquid crystal display
LED Light emitting diode
MC Ministry of Communications
MCTI Ministry of Science, Technology and Innovation
MDGs Millennium Development Goals
MDIC Ministry of Development, Industry and Trade
MERCOSUR Mercado Común del Sur (Southern Common Market)
MCN MERCOSUR Common Nomenclature
MFN Most Favoured Nation
MF Ministry of Finance
NC Common Nomenclature
NTM Non-Tariff Measure
OLED Organic light emitting diode
PADIS Programme of Incentives for the Semiconductors Sector
PASEP Civil Service Asset Formation Programme
PATVD Programme of Support to the Technological Development of the Industry of Digital TV Equipment
PDP Plasma display panel
PEC Regime for predominantly exporting companies
PIS Social Integration Programme
PIS/PASEP - Importation Social Integration and Civil Service Asset Formation Programmes applicable to Imports
PPB Basic Productive Process
PROCONVE Motor Vehicle Air Pollution Control Program
PTA Preferential Trade Arrangements
R$ Brazilian real
R&D Research and Development
RECAP Special Regime for the Purchase of Capital Goods for Exporting Enterprises
REPES Special Tax Regime for the Exportation Platform of Information Technology Services
RFB Federal Revenue Service of Brazil
RTA Regional Trade Agreements
SBTVD Brazilian digital television standard
SCM Agreement Agreement on Subsidies and Countervailing Measures
S&D Special and Differential Treatment
SDP Secretariat for Production Development
SINIEF Integrated National System of Economic and Tax Information
SISCOMEX Integrated Foreign Trade System
STE Secretary for Telecommunications
SRF Secretariat of the Federal Revenue Service of Brazil
SUDAM Superintendency for the Development of the Amazonia
SUDENE Superintendency for the Development of the Northeast
TFEL Thin film electroluminescent displays
TIPI Table of Application of the Tax on Industrialised Products
TRIMs Agreement Agreement on Trade-Related Investment Measures
TV Digital Television
UN United Nations
UNECE United Nations Economic Commission for Europe
UNESCO United Nations Educational, Scientific and Cultural Organization
VAT Value-Added Tax
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials 679
WHO World Health Organization
WTO World Trade Organization

1 INTRODUCTION

1.1 COMPLAINTS BY THE EUROPEAN UNION AND JAPAN

1.1.
On 19 December 2013, the European Union requested consultations with Brazil pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXII of the General Agreement on Tariffs and Trade 1994 (the GATT 1994), Article 4 of the Agreement on Subsidies and Countervailing Measures (the SCM Agreement), and Article 8 of the Agreement on Trade-Related Investment Measures (the TRIMs Agreement), with respect to the measures and claims set out below.1
1.2.
Consultations were held on 13-14 February 2014. An additional consultation meeting took place on 4 April 2014.
1.3.
On 2 July 2015, Japan requested consultations with Brazil pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXII:1 of the GATT 1994, Articles 4 and 30 of the SCM Agreement and Article 8 of the TRIMs Agreement with respect to the measures and claims set out below.2
1.4.
Consultations were held on 15-16 September 2015.

1.2 PANEL ESTABLISHMENT AND COMPOSITION

1.5.
On 31 October 2014, the European Union requested the establishment of a panel pursuant to Article 6 of the DSU, Article XXIII of the GATT 1994, Articles 4.4 and 30 of the SCM Agreement, and Article 8 of the TRIMs Agreement, with standard terms of reference.3 At its meeting on 17 December 2014, the Dispute Settlement Body (DSB) established a panel pursuant to the request of the European Union in document WT/DS472/5, in accordance with Article 6 of the DSU.4
1.6.
The Panel's terms of reference are the following:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the European Union in document WT/DS472/5 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.5

1.7.
On 16 March 2015, the European Union requested the Director-General to determine the composition of the panel, pursuant to Article 8.7 of the DSU. On 26 March 2015, the Director-General accordingly composed the Panel as follows:

Chairperson: Mr Eirik Glenne

Members: Mr Toufiq Ali

Mr Alvaro Espinoza

1.8.
Argentina, Australia, Canada, China, Colombia, India, Japan, the Republic of Korea, the Russian Federation, South Africa, Chinese Taipei, Turkey and the United States notified their interest in participating in the Panel proceedings as third parties.
1.9.
On 17 September 2015, Japan requested the establishment of a panel pursuant to Articles 4.7 and 6 of the DSU, Article XXIII of the GATT 1994, Article 8 of the TRIMs Agreement, and Articles 4.4 and 30 of the SCM Agreement, with standard terms of reference.6 At its meeting on 28 September 2015, the Dispute Settlement Body (DSB) established a panel pursuant to the request of Japan in document WT/DS497/3, in accordance with Article 6 of the DSU.7
1.10.
The Panel's terms of reference are the following:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by Japan in document WT/DS497/3 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.8

1.11.
On 29 September 2015, following the agreement of the parties, the Panel was composed as follows:

Chairperson: Mr Eirik Glenne

Members: Mr Toufiq Ali

Mr Alvaro Espinoza

1.12.
Argentina, Australia, Canada, China, Colombia, the European Union, India, the Republic of Korea, the Russian Federation, Singapore, Turkey, Ukraine and the United States notified their interest in participating in the Panel proceedings as third parties.9

1.3 PANEL PROCEEDINGS

1.3.1 General

1.13.
After consultation with the European Union and Brazil, the Panel adopted its Working Procedures10 and timetable on 28 April 2015.
1.14.
Following the establishment of the Panel upon request from Japan, and pursuant to Article 9.3 of the DSU, the Panels were composed with the same persons and, in agreement with the parties, are following a joint procedure.11
1.15.
After consultation with the European Union, Japan and Brazil, the Panel adopted its Joint Working Procedures12 and joint timetable on 9 October 2015. Paragraph 26(d) of the Joint Working Procedures provides that each party shall serve on all third parties (WT/DS472 and WT/DS497) its written submissions in advance of the first substantive meeting with the Panel and each third party shall serve any document submitted to the Panel directly on the parties and all other third parties (WT/DS472 and WT/DS497).
1.16.
The Panel held a first substantive meeting with the parties from 23 February to 25 February 2016. A session with the third parties took place on 24 February 2016. The Panel held a second substantive meeting with the parties from 31 May to 1 June 2016. On 9 August 2016, the Panel issued the descriptive part of its Report to the parties. The Panel issued its Interim Reports to the parties on 11 November 2016. The Panel issued its Final Reports to the parties on 20 December 2016.

1.3.2 Working procedures on Business Confidential Information (BCI)

1.17.
Working procedures on BCI were adopted on 28 April 2015.13 Additional Joint Working Procedures on BCI were adopted on 9 October 2015.14

2 FACTUAL ASPECTS

2.1 GENERAL DESCRIPTION OF RELEVANT ASPECTS OF THE BRAZILIAN TAX SYSTEM

2.1.
In this section the Panel outlines certain topics which, although they are not themselves the measures at issue, have been addressed by the parties in their submissions and may be of relevance for the purposes of this Panel's findings. The Panel notes that the parties to the dispute seem to agree on the basic functioning of the tax system in Brazil and most of the aspects of the concerned tax programmes including their defining measures, but disagree with respect to the WTO-consistency of those measures.15
2.2.
The measures at issue in this dispute concern mainly the following Brazilian Federal taxes and contributions16:

a. IPI (Imposto sobre Produtos Industrializados – Tax on Industrialised Products);

b. PIS/PASEP (Programa de Integração Social – Social Integration Programme / Programa de Formação do Patrimônio do Servidor Público – Civil Service Asset Formation Programme);

c. PIS/PASEP-Importation (Programa de Integração Social e de Formação do Patrimônio do Servidor Público incidente na Importação de Produtos Estrangeiros ou Serviços – Social Integration and Civil Service Asset Formation Programmes applicable to Imports of Foreign Goods or Services);

d. COFINS (Contribuição para o Financiamento da Seguridade Social – Contribution to Social Security Financing);

e. COFINS-Importation (Contribuição para o Financiamento da Seguridade Social incidentes sobre a importação de bens e serviços – Contribution to Social Security Financing applicable to Imports of Goods or Services); and

f. CIDE (Contribuição sobre Intervenção no Domínio Econômico – Contribution of Intervention in the Economic Domain).

The IPI tax

2.3.
The IPItax is a Brazilian Federal tax that applies to all national or foreign industrialized (i.e. manufactured) products.17 It is envisaged in item IV of Article 153 of the Brazilian Federal Constitution18 and regulated through Laws 5,172 of 25 October 196619 and 4,502 of 30 November 1964, and Decree 7,212 of 15 June 2010.20
2.4.
The IPI tax rates are product-specific, and generally range between 0% and 20%, although they can reach up to 300%. The Brazilian government issued a table (Tabela de Incidência do imposto sobre produtos industrializados – TIPI) by means of Decree 7,660 of 23 December 201121, setting out the applicable tax rates per product.
2.5.
The IPI tax is linked to the price or value of the industrialized product on which it is imposed. In the case of domestic products, the taxable base is the transaction value. In the case of imported products, the taxable base is the customs value plus the import duties and charges paid. In the case of industrialised products acquired in auction, the taxable base is the price of the auctioned product.22
2.6.
The entities with the legal responsibility for the payment of the IPI tax to the Federal Revenue Service are the industrial establishments, or assimilated entities, that sell an industrialized product. The entities assimilated to industrial establishments under the IPI rules are importers, wholesalers or retailers that commercialize industrialized products. The final economic burden is borne by the purchaser of the final good, whether it is a legal or a natural person.
2.7.
The taxable event is, in the case of domestic products,the exit of the industrialized product from the industrial establishment; in the case of an imported product, the customs clearance of the product; and, in the case of abandoned or seized goods, the acquisition of the product at auction.23
2.8.
The IPI tax is not paid directly by the entity bearing the ultimate burden of paying the IPI tax. In the case of domestic products, the IPI tax is charged by the industrial establishment selling the industrialized product to the industrial establishment, or assimilated entity, buying the industrialized product. The taxes retained by the industrial establishment selling the industrialized product must be remitted to the Federal Revenue Service on a monthly basis, specifically on the 25th day of the subsequent month following the transaction. In the case of imported products, the IPI tax is charged by the customs authorities to the importer of the industrialized product during the customs clearance process.
2.9.
It is important to note that the IPI tax applies only with respect to transactions between industrial establishments or assimilated entities or individuals. For instance, an industrial establishment that performed any type of industrialization on a product, but did not finish the product (i.e. did not complete the last stage of a production chain before commercialization of the final product), will charge the IPI tax to an establishment purchasing the industrialized product (or intermediate product) to further manufacture it. The industrial establishment that further manufactured the product will charge the IPI tax to the wholesaler or retailer that purchases the industrialized product to commercialize it. However, the IPI tax will not be due on the sale made by the wholesaler or retailer to the final consumer, because there was no further manufacturing of the product.
2.10.
By constitutional requirement, the IPI tax "shall be non-cumulative, and the tax due in each transaction shall be compensated by the amount charged in previous transactions".24 Article 225 of Decree 7,212/2010 states that "non-cumulativeness becomes effective by means of the credit system of the tax due on products entering the facilities of the taxpayer, which will be deducted from the amount due on the exit of products, in the same period".25 This means that when a taxpayer remits to the government the IPI tax collected for any given transaction, the taxpayer may deduct the IPI tax paid in earlier stages of the supply chain. This ensures that the tax is levied only on the value added.
2.11.
Under this non-accumulation rule, when an industrial establishment buys an industrialized product that will be subject to further manufacturing (i.e. an intermediate product), the seller charges the IPI tax to the buyer and the buyer obtains a credit in the same amount of the tax paid. This credit will be deducted from the buyer's IPI tax debits when paying its monthly IPI tax liabilities due on the 25th day of the subsequent month following the transaction. When the industrial establishment sells the now finished product to a wholesaler or retailer, it will charge the IPI tax to that wholesaler or retailer and remit the tax to the Federal Revenue Service when paying its monthly tax liabilities.
2.12.
For example, if the industrial establishment pays R$10 of IPI tax when purchasing the industrialized intermediate product, it will obtain a credit of R$10 to deduct from its IPI tax debits when paying its IPI tax liabilities due on the 25th day of the subsequent month following the transaction. If the industrial establishment sells the now finished product and, after having added some value to the product, charges R$20 of IPI tax to the wholesaler, the industrial establishment selling the product will transfer R$20 to the Federal Revenue Service. However, because it had already obtained, and in normal circumstances used in paying its monthly IPI tax liabilities, the tax credit of R$10, the real amount of tax paid for that specific product by that industrial establishment will have been only R$10, which is the tax corresponding to the value added.
2.13.
In the case of a tax exemption (including through zero rates) on the sales of an industrialized intermediate product, if an industrial establishment sells an industrialized intermediate product with the IPI tax exempted, the industrial establishment that will further manufacture the intermediate product will not have to pay the IPI tax to the seller and the seller will not have to remit any money to the Federal Revenue Service. In this situation, the buyer will not obtain a tax credit. For instance, if an industrial establishment buys an industrialized intermediate product with an exempted IPI tax that would otherwise be of R$10, it will not be required to pay R$10 to the seller, but it will not obtain a credit of R$10. This industrial establishment will further manufacture the industrialized intermediate product to obtain an industrialized finished product, and, when it sells the finished product, it will charge the IPI tax equivalent to its value added, for example, R$10, plus the previous value added of R$10, to the wholesaler. Thus, the industrial establishment will transfer R$20 to the Federal Revenue Service, but only after the industrialized finished product is sold.
2.14.
When an industrial establishment sells an industrialized finished product to a wholesaler or retailer, it will charge the IPI tax to the wholesaler or retailer and remit the tax to the Federal Revenue Service when paying its monthly tax liabilities, although it will be able to deduct from its tax debits the tax credits previously accrued.
2.15.
In the case of a tax exemption (including through zero rates) on the sale of an industrialized finished product, if an industrial establishment sells an industrialized finished product with the IPI tax exempted, the wholesaler or retailer will not have to pay any IPI tax to the seller and the seller will not have to remit any money to the Federal Revenue Service.
2.16.
By the same principle of non-accumulation, industrial establishments are entitled to obtain credits on the amount of IPI tax paid on the purchase of inputs, raw materials and packaging materials used in the production of their industrialized products.26 Thus, as explained in the case of intermediate industrialized products (which are inputs for the industrial establishment buying them), when the industrial establishment buys inputs, raw materials and packaging materials, it will pay the IPI tax to the seller, but will obtain a tax credit on the same amount of the tax paid, which it will be able to deduct from its IPI tax debits when paying its monthly IPI tax liabilities due on the 25th day of the subsequent month following the transaction. When the industrial establishment sells the industrialized product to another industrial establishment or assimilated entity, it will charge the IPI tax to the buyer and remit the tax to the Federal Revenue Service when paying its monthly tax liabilities.
2.17.
For example, if the industrial establishment pays R$10 of IPI tax when purchasing the inputs, raw materials and packaging materials, it will obtain a credit of R$10 to deduct from its IPI tax debits when paying its IPI tax liabilities due on the 25th day of the subsequent month following the transaction. If the industrial establishment sells an industrialized product (intermediate or finished) and, after having added some value to the product, charges, for example, R$20 of IPI tax to the industrial establishment or assimilated entity, then the industrial establishment selling the product will transfer R$20 to the Federal Revenue Service. However, because it had already obtained, and in normal circumstances used, the tax credit of R$10, the real amount of tax paid for that specific product by that industrial establishment will have been R$10, which is the tax corresponding to the value added.
2.18.
In the case of tax exemptions (including through zero rates) on the purchases of inputs, raw materials and packaging materials, if an industrial establishment buys inputs, raw materials and packaging materials with the IPI tax exempted or suspended, it will not have to pay the tax to the seller and the seller will not have to remit any money to the Federal Revenue Service. In this situation, the buyer will not obtain a tax credit. For instance, if an industrial establishment buys an input with an exempted IPI tax that would otherwise be R$10, it will not be required to pay R$10 to the seller, but it will not obtain a credit of R$10. This industrial establishment will use the input to manufacture an industrialized product (intermediate or finished) and, when it sells the finished product, it will charge the IPI tax equivalent of its value added R$10, plus the previous value added of R$10, to the wholesaler. Thus, the industrial establishment will transfer R$20 to the Federal Revenue Service, but only after the product is sold.
2.19.
It is important to note that Article 225 of Decree 7,212/2010 states that "when, during a certain period of analysis, from the comparison of debits and credits, a credit balance is found, it will be transferred to the next period".27 This means that when the IPI tax credits in a given month exceed the IPI tax debits for that month, the excess credits may be carried forward, i.e. used to offset IPI obligations arising in subsequent months.
2.20.
In cases where, in spite of the carry-forward, the IPI tax debits are lower than the IPI tax credits after a 3-month period, the entity liable for the tax may either use the IPI tax credits in question to compensate other Federal tax liabilities, or request a reimbursement of the IPI tax credits, within five years of the accrual of the IPI credits.28 The reimbursement process may take from several months to years.29

The PIS/PASEP and COFINS Contributions

2.21.
PIS/PASEP and COFINS are Brazilian Federal contributions that apply to gross revenues earned by all types of legal entities. The PIS/PASEP and COFINS contributions are envisaged in Article 195 of the Brazilian Federal Constitution30 and regulated through Laws 9,718 of 27 November 199831 and 10,637 of 30 December 200232, in the case of PIS/PASEP, and Law 10,833 of 29 December 2003, in the case of COFINS.33
2.22.
The PIS/PASEP and COFINS contributions are subject, as a general rule, to the non-cumulative regime.34
2.23.
The contribution rates for the non-cumulative regime are, as a general rule, 1.65%35 for PIS/PASEP and 7.6%36 for COFINS, for a combined rate of 9.25%, although different rates apply to the revenue arising from sales to certain companies, from sales of certain specific products, or from the provision of certain services.
2.24.
The taxable base is the taxable legal person's monthly turnover, which is considered to be all income earned by the legal entity, regardless of its name or accounting classification.37 In the case of a legal entity engaged in trade in goods, the taxable base is the gross revenue from the total sales recognised for the reporting period, minus the revenue resulting from certain deductible items, such as subsidies, capital gains, and cancelled sales.
2.25.
The taxable persons are all enterprises that receive revenue from their business activities. A legal entity selling a product will charge the amount of PIS/PASEP and COFINS contributions with respect to that product to the legal entity buying the product, and will then remit the amount of the contributions to the Government when it pays its PIS/PASEP and COFINS liabilities due on the 25th day of the subsequent month following the transaction.
2.26.
Similarly to the IPI tax, the PIS/PASEP and COFINS contributions under the non-cumulative regime operate as taxes on value-added, where companies generate credits in relation to their purchases of taxed products, which they can offset with debits when paying their PIS/PASEP and COFINS liabilities due on the 25th day of the subsequent month following the transaction. The system of tax credits ensure that prior-stage PIS/PASEP and COFINS can be deducted at each stage of the supply chain.
2.27.
Tax credits can be generated for the contributions paid with respect to purchases of goods for resale; purchases of goods or services used as inputs for the production of goods or the supply of services; any reimbursements linked to cancelled sales; energy, capital lease costs and logistical costs; and machinery, equipment and other goods incorporated into fixed assets (i.e. capital goods).38
2.28.
As in the case of the IPI tax, if a company cannot use all its credits in a given month, because they exceed its tax liabilities for that period, the credits can be carried forward for future use in subsequent months.39 If after three months the debits are insufficient, the company can compensate the credits with other liabilities or ask for reimbursement, within five years of generating the credit.40 The reimbursement process can take from several months to years.41
2.29.
Companies whose taxation is based on the "presumed profit method" are subject to the cumulative regime.42 The cumulative regime appears to be used by small businesses.43 Under the cumulative regime, companies pay a rate of 3.65% (i.e. 0.65% for PIS/PASEP and 3% for COFINS) of their gross monthly revenue. Companies under this regime pay the contributions every month on the basis of their turnover without any offsets resulting from their purchases of goods and services for resale or for use in their production processes. In other words, there are no tax credits corresponding to the PIS/PASEP and COFINS contributions paid by upstream economic operators, and the system does not focus on the value added by each company in the supply chain.44

The PIS/PASEP-Importation and COFINS-Importation Contributions

2.30.
The PIS/PASEP-Importation and COFINS-Importation are the import-focused variants of PIS/PASEP and COFINS. They are regulated through Law 10,865 of 30 April 200445 and Normative Instructions SRF 594 of 26 December 200546 and RFB 1,401 of 9 October 2013.47
2.31.
The contribution rates used to be the standard nominal rates of the PIS/PASEP and COFINS non-cumulative regime. However, due to an amendment effective as of May 2015, the rates are 2.1% for PIS/PASEP-Importation and 9.65% for COFINS-Importation, for a combined rate of 11.75%.48 For some categories of products, the applicable rates are higher (e.g. the combined rates for pharmaceuticals is 15.79%; for cosmetics 20%; and for tyres 16.56%).49 These categories of products also have higher PIS/PASEP and COFINS contributions rates.
2.32.
The two contributions apply to individual import transactions and are levied upon importation of goods. The taxable base is the customs value of the goods.50
2.33.
Importers are also subject to the non-cumulative regime, so they can offset the amounts paid upon importation with their domestic PIS/PASEP and COFINS liabilities. Thus, importers pay the contributions only with respect to added value, i.e. the difference between the customs value and the importers' sales price. The tax credit mechanism with respect to the non-cumulative PIS/PASEP and COFINS domestic regime applies equally in the case of importers.
2.34.
It is important to note that Law 10,865/2004 envisages that the COFINS-Importation contribution is increased by 1% for imports of certain listed goods.51 However, contrary to the general rules on non-accumulation, due to an amendment of June 2015 of Law 10,865/2004, the additional 1% does not give right to any COFINS credit for importers, so it cannot be deducted from their domestic COFINS liabilities.52

The CIDE Contribution

2.35.
CIDE is a Brazilian Federal contribution that applies to remittances/royalty payments abroad. It is regulated by Law 10,168 of 19 December 2000.53
2.36.
The tax rate is 10%.54 The taxable persons are legal entities holding a license of use or acquiring technological knowledge, as well as those entering into agreements that imply technological transfer, made with persons residing or domiciled abroad. It is also payable by legal entities entering into agreements aimed at technical and administrative assistance services and similar services to be provided by persons residing or domiciled abroad, as well as by legal entities which pay, credit, deliver, use or remit royalties on any ground whatsoever to beneficiaries residing or domiciled abroad. The contribution does not apply to compensation for license of use or rights for marketing or distribution of computer software, unless they involve the transfer of a relevant technology license. The basis of calculation is the amount paid, credited, delivered, used or remitted every month, to persons residing or domiciled abroad.55

2.2 THE MEASURES AT ISSUE

2.37.
The claims brought by the European Union and Japan concern certain tax treatment established under the following programmes56:

a. The Informatics programme;

b. The programme of Incentives for the Semiconductors Sector (Programa de Incentivos ao Setor de Semicondutores), hereinafter the PADIS programme;

c. The programme of Support for the Technological Development of the Industry of Digital TV Equipment (Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Equipamentos para TV Digital), hereinafter the PATVD programme;

d. The programme for Digital Inclusion (Inclusão Digital), hereinafter the Digital Inclusion programme;

e. The programme of Incentive to the Technological Innovation and Densification of the Automotive Supply Chain (Programa de Incentivo à Inovação Tecnológica e Adensamento da Cadeia Produtiva de Veículos Automotores), hereinafter the INOVAR-AUTO programme;

f. The regime for predominantly exporting companies, hereinafter the PEC programme; and

g. The Special Regime for the Purchase of Capital Goods for Exporting Enterprises (Regime Especial de Aquisição de Bens de Capital para Empresas Exportadoras), hereinafter the RECAP programme.

2.38.
The European Union's and Japan's respective panel requests state that these programmes "[are] set up and implemented"57, "established and administered"58 "through the following [instruments] ….as well as any amendments or extensions, any replacement measures, any renewal measures, any implementing measures, and [any] other related measures"59:

The INFORMATICS programme

a. Law 8,248 of 23 October 199160;

b. Law 10,176 of 11 January 200161;

c. Law 10,637 of 30 December 200262;

d. Law 13,023 of 8 August 201463;

e. Decree 5,906 of 26 September 200664;

f. Decree 6,759 of 5 February 2009 (final and transitional provisions), as amended by subsequent acts65;

g. Decree 7,212 of 15 June 2010 (especially Chapter VI, Section II)66;

h. Decree 8,010 of 16 May 201367;

i. Interministerial Implementing Order MDIC/MCTI 177 of 18 October 200268;

j. Implementing Order MCT 950 of 12 December 200669;

k. Interministerial Implementing Order MCTI/MDIC/MF 148 of 19 March 200770;

l. Interministerial Implementing Order MCTI/MDIC 685 of 25 October 200771;

m. Interministerial Implementing Order MDIC/MCT 170 of 4 August 201072;

n. Implementing Order MDIC 267 of 30 August 201373;

o. Interministerial Implementing Order SDP/MDIC 1 of 18 September 201374;

p. Implementing Order MCT 1,309 of 19 December 201375;

q. Interministerial Implementing Order MCTI/MDIC 202 of 13 February 201476;

r. Implementing Orders adopting Basic Production Processes ("PPBs") pursuant to the provisions of the above mentioned instruments; and

s. Accreditations (habilitações) granted pursuant to the Informatics programme.

The PADIS programme

a. Law 11,484 of 31 May 200777;

b. Decree 6,233 of 11 October 200778;

c. Decree 8,247 of 23 May 201479;

d. Normative Instruction RFB 852 of 13 June 200880;

e. Decree 7,212 of 15 June 2010 (especially Chapter VI, Section III)81;

f. Decree 6,759 of 5 February 2009 (especially Book III, Title II, Chapter VII, Section VII), as amended by subsequent acts82;

g. Interministerial Implementing Order MCT/MDIC/MF 297 of 13 May 2008 establishing the procedures and deadline for analysis of the PADIS implementing Decree 6,233 of 11 October 2007 (GTI-PADIS)83;

h. Interministerial Implementing Order MCT/MDIC 290/200884;

i. Implementing Orders establishing PPBs applicable under PADIS; and

j. Accreditations (habilitações) granted pursuant to the PADIS programme.

The PATVD programme

a. Law 11,484 of 31 May 200785;

b. Decree 6,234 of 11 October 200786;

c. Normative Instruction RFB 853 of 13 June 200887;

d. Decree 7,212 of 15 June 2010 (especially Chapter VI, Section IV)88;

e. Decree 6,759 of 5 February 2009 (especially Book III, Title II, Chapter VII, Section VIII)89;

f. Interministerial Implementing Order MCT/MDIC 291 of 7 May 200890;

g. Implementing Orders establishing PPBs applicable under PATVD; and

h. Accreditations (habilitações) granted pursuant to the PATVD programme.

The DIGITAL INCLUSION programme

a. Law 11,196 of 21 November 200591;

b. Law 12,507 of 11 October 201192;

c. Law 12,715 of 17 September 201293;

d. Law 13,097 of 19 January 201594;

e. Decree 5,602 of 6 December 200595;

f. Implementing Order MC 87 of 10 April 201396;

g. Implementing Order STE 2 of 26 August 201397; and

h. Other Implementing Orders establishing PPBs applicable under the Digital Inclusion programme.

The INOVAR-AUTO programme

a. Law 12,546 of 14 December 201198;

b. Law 12,715 of 17 September 201299;

c. Law 12,844 of 19 July 2013100;

d. Law 12,996 of 18 June 2014101;

e. Decree 7,819 of 3 October 2012102;

f. Decree 8,015 of 17 May 2013103;

g. Decree 8,294 of 12 August 2014104;

h. Implementing Order MCTI 296 of 1 April 2013105;

i. Implementing Order MDIC 106 of 11 April 2013106;

j. Implementing Order MDIC 113 of 15 April 2013107;

k. Interministerial Implementing Order MCTI/MDIC 772 of 12 August 2013108;

l. Implementing Order MDIC 280 of 4 September 2013109;

m. Implementing Order MDIC 297 of 30 September 2013110;

n. Implementing Order MDIC 257 of 23 September 2014111;

o. Implementing Order MDIC 290 of 14 November 2014112;

p. Implementing Order MDIC 318 of 26 December 2014113;

q. ICMS Convention 38 of 22 May 2013114;

r. SINIEF Convention of 15 December 1970115;

s. Accreditations (habilitações) granted pursuant to the INOVAR-AUTO programme; and

t. Terms of Commitment (termos de compromisso) signed by accredited companies.

The PEC programme

a. Law 10,637 of 30 December 2002116;

b. Law 10,865 of 30 April 2004117;

c. Law 12,715 of 17 September 2012118;

d. Decree 6,759 of 5 February 2009 (especially Book III, Title I, Chapter VII, and Book III, Title II, Chapter VII, Section V)119;

e. Normative Instruction SRF 595 of 27 December 2005120;

f. Normative Instruction RFB 948 of 15 June 2009121;

g. Normative Instruction RFB 1,424 of 19 December 2013122; and

h. Accreditations (habilitações) or registration (registro) of individual "predominantly exporting companies" pursuant to the scheme.

The RECAP programme

a. Law 11,196 of 25 November 2005123;

b. Law 12,715 of 17 September 2012124;

c. Decree 5,649 of 29 December 2005125;

d. Decree 5,789 of 25 May 2006126;

e. Decree 6,759 of 5 February 2009 (especially Book III, Title II, Chapter VII, Section IV)127;

f. Normative Instruction SRF 605 of 4 January 2006128; and

g. Accreditations (habilitações) granted pursuant to the RECAP programme.

2.2.1 The Informatics programme

2.2.1.1 Introduction

2.39.
The Informatics programme provides for exemptions and reductions on the applicable Tax on Industrialised Products (IPI tax) on the sale of information technology goods. It also provides for suspensions of the IPI tax on the purchase or import of raw materials, intermediate goods and packaging materials used in the production of information technology and automation goods incentivised under the Informatics programme.
2.40.
The relevant tax exemptions, reductions and suspensions provided for in the Informatics programme entered into force in October 1991 and are due to expire on 31 December 2029.129

2.2.1.2 Tax treatment

2.41.
The Informatics programme provides for the following exemptions and reductions on the IPI tax on information technology and automation goods:

a. 95% reduction until 31 December 2024, 90% reduction until 31 December 2026 and 85% reduction until 31 December 2029, for goods produced in Central-West Region and in the regions of influence of the Superintendence for the Development of Amazonia (SUDAM) and the Superintendence for the Development of the Northeast (SUDENE)130; and

b. 80% reduction until 31 December 2024, 75% reduction until 31 December 2026, and 70% reduction until 31 December 2029, for goods produced in other locations in Brazil.131

2.42.
The Informatics programme provides for specific reduction rates for portable microcomputers and small-capacity digital processing units based on microprocessors valued at no more than R$11,000.00; magnetic optical disk units; printed circuits with assembled electrical and electronic components; cabinets; and power sources that are recognizable as exclusively or primary designed for such equipment:

a. Full exemption until 31 December 2024, 95% reduction until 31 December 2026 and 85% reduction until 31 December 2029, for goods produced in Central-West Region and in the regions of influence of SUDAM and SUDENE132; and

b. 95% reduction until 31 December 2024, 90% reduction until 31 December 2026, and 70% reduction until 31 December 2029, for goods produced in other locations in Brazil.133

2.43.
The following specific IPI tax reductions apply to information technology and automation goods that have additionally obtained the status of "developed in Brazil":

a. 100% reduction until 31 December 2024, 95% reduction until 31 December 2026 and 90% reduction until 31 December 2029134; and

b. Full exemption until 31 December 2024, 95% reduction until 31 December 2026 and 85% reduction until 31 December 2029, for goods produced in Central-West Region and in the regions of influence of SUDAM and SUDENE.135

2.44.
The Informatics programme also provides for IPI suspensions on raw materials, intermediate goods and packaging materials used in the production of information technology and automation goods incentivised under the Informatics programme, applied at the time that the raw materials, intermediate goods and packaging materials are released from the industrial establishment.
2.45.
The suspension is subject to the condition that more than 60% of the company's total gross revenue be derived from the sale of products covered by the Informatics programme.136 The suspension expires, and the IPI tax becomes definitely non-due, with the export or domestic sale of products in which raw materials, intermediate goods and packaging materials purchased with suspended IPI tax have been used.137

2.2.1.3 Product coverage

2.46.
The following categories of information technology and automation goods are covered under the Informatics programme:

a. Semiconductor electronic components, optoelectronics, and their respective electronic inputs;

b. Machines, equipment, and devices based on digital technology that function to collect, treat, structure, store, switch, transmit, recover, or present information, and their respective electronic inputs, parts, pieces, and physical support for operation;

c. Programs for computers, machines, equipment, and devices for treating information, and their respective technical documentation (software);

d. Technical services related to goods and services described in paragraphs (a), (b) and (c) above;

e. Landline telephone apparatuses, with a wireless received-microphone that incorporates a digital control, Code 8517.11.00 of the Mercosur Common Nomenclature (MCN);

f. Portable terminals for cellular telephony, Code 8517.12.31 of the MCN; and

g. Video output units (monitors) classified in Sub-positions 8528.41 and 8528.51 of the MCN, without interfaces and circuitry for receiving radio frequency signals or even composite video, suitable for operating with machinery, equipment, or devices based on digital technique, of Position 8471 of the MCN (with functions for collecting, treating, structuring, storing, switching, transmitting, recovering or presenting information).138

2.47.
The specific list of products falling under these categories, identified according to their MCN codes, as well as a list of goods excluded from the Informatics programme, is provided in Annexes I and II of Decree 5,906/2006.139

2.2.1.4 Eligible companies

2.48.
The eligible companies under the Informatics programme are companies that (i) develop or produce information technology and automation goods and services in compliance with the relevant Basic Productive Processes (PPBs), and (ii) invest in information technology research and development activities in Brazil.140

2.2.1.5 Requirements for obtaining the tax treatment

2.49.
In order to obtain the tax exemptions, reductions and suspensions provided for in the Informatics programme, companies manufacturing the relevant information technology and automation goods and/or purchasing/importing the relevant raw materials, intermediate goods and packaging materials used in the production of the incentivised products, must obtain an accreditation.
2.50.
Companies can get accredited by submitting an application to the Ministry of Science, Technology and Innovation (MCTI). The application must include a project proposal containing, among other information: (a) the products to be manufactured; (b) the research and development plan prepared by the company; (c) proof that the company will adhere to the relevant PPBs; and (d) evidence, when appropriate, that the products satisfy the requirement of having been developed in Brazil.141
2.51.
Once accreditation is obtained, accredited companies shall report to the Executive Branch annually on their compliance with their R&D obligations during the previous year. If the requirements are not fulfilled or the reports are not approved, accreditation may be suspended, without prejudice to the company being required to reimburse the amounts previously reduced or exempted, updated and increased by monetary penalties applicable to fiscal debts related to the taxes of the same nature.142

2.2.1.5.1 Investment in Research and Development (R&D)

2.52.
Companies must invest annually in R&D on information and automation technology to be conducted in Brazil a percentage of their gross sales on the internal market resulting from commercialization of incentivized information technology goods and services, after deduction of taxes levied in connection with those sales, as well as deduction of the value of the purchases of products entitled to an exemption or reduction of the IPI tax. Under the Informatics Law, the original minimum percentage of a company's gross revenue obtained with the sales of IT products in the domestic market that had to be invested in R&D was 5%, subject to gradual reductions.143
2.53.
At the time of the establishment of the panel, one such reduction was already in force. The percentage was reduced by 20% from 1 January 2004 until 31 December 2029.144 In the case of goods produced in the Central-West Region and the regions of influence of SUDAM and SUDENE, the percentage was reduced by 13% from 1 January 2004 until 31 December 2029.145
2.54.
Thus, accredited companies have to invest at least 4% of their gross revenue in R&D,146 and at least 4.35% if investments are related to the sales of ICT products produced in the Mid-west, North (SUDAM) and Northeast (SUDENE) regions.147
2.55.
The 4% investment is broken down into two parts: the first corresponding to 1.84%148, and the second corresponding to 2.16%149, of the company's gross revenue obtained with the sales of IT products in the domestic market.
2.56.
The share of 1.84% must be invested as follows:150

a. At least 0.8% by means of conventions signed with research centres or Brazilian educational entities accredited with the MCTI's Committee of Technology and Information (CATI)151;

b. At least 0.64% by means of conventions with research centres or Brazilian educational entities accredited with the CATI and located in the Mid-west, North (SUDAM) and Northeast (SUDENE) regions.152 At least 30% of that amount must be invested in universities, colleges, educational entities and research centres or institutes created or maintained by Federal, State or District authorities located in such regions153;

c. At least 0.4% as financial resources quarterly deposited in the National Science and Technology Development Fund (FNDCT).154

2.57.
Up to two-thirds of the remaining 2.16% share can be invested as financial resources in the Assistance Program for Development of the Information Technology Sector.155
2.58.
In turn, the 4.35% investment is broken down into two parts: the first corresponding to 2,001%156, and the second corresponding to 2,349%157, of the company's gross revenue obtained with the sales in the domestic market of IT products produced in the Mid-west, North (SUDAM) and Northeast (SUDENE) regions.
2.59.
The share of 2,001% must be invested as follows:158

a. At least 0.87% by means of conventions signed with research centres or Brazilian educational entities accredited with the CATI159;

b. At least 0,696% by means of conventions with research centres or Brazilian educational entities accredited with the CATI and located in the Mid-west, North (SUDAM) and Northeast (SUDENE) regions.160 At least 30% of that amount must be invested in universities, colleges, educational entities and research centres created or maintained by Federal, District or State Authorities located in such regions161;

c. At least 0,435% as financial resources quarterly deposited in the FNDCT162;

d. Up to two-thirds of the remaining 2,349% share can be invested as financial resources in the Assistance Program for Development of the Information Technology Sector.163

2.60.
The percentages were also reduced by 25% for accredited companies that produce portable microcomputers and small-capacity digital processing units based on microprocessors valued at no more than R$11,000.00; magnetic optical disk units; printed circuits with assembled electrical and electronic components; cabinets; and power sources that are recognizable as exclusively or primarily designed for such equipment; and calculated exclusively on gross sales derived from the commercialization of those products in the domestic market.164

2.2.1.5.2 Compliance with Basic Productive Processes (PPBs)

2.61.
Companies must produce the information technology and automation goods in accordance with the terms of particular product-specific PPBs165, which set out the necessary production steps or minimum set of operations to be carried out in Brazil.
2.62.
A PPB is defined as the minimum set of operations performed at a manufacturing facility that characterizes the actual industrialization of a given product.166 Thus, PPBs indicate the minimum stages or steps of the manufacturing process of a product that must be performed in Brazil.
2.63.
Some PPBs also require that specific components, parts and pieces used in the production of the information technology and automation good be produced, in a specific percentage, in accordance with their own respective PPBs. Other PPBs require a percentage of local assembly for specific components, parts and pieces.
2.64.
The PPBs are established by product or groups of products in individual Implementing Orders (Portarias).
2.65.
For a PPB to be established, an interested company or group of companies must submit a request for the establishment of a PPB with respect to a specific product or group of products.167 The request shall be examined by an inter-ministerial technical group (GT-PPB) composed by representatives of the MCTI and the Ministry of Development, Industry and Trade (MDIC).168 The GT-PPB shall make a project proposal based on the information provided in the request and technical visits made to the company; it shall subject the proposal to public consultation for 15 days; and shall submit its technical opinion and recommendation to the MDIC and the MCTI.169 The MDIC and the MCTI must then issue an interministerial implementing order approving or refusing the PPB within 120 days from the date of submission of the request by the company.170
2.66.
Although the PPBs are established with respect to a specific product or group of products upon request of a company, once established the PPBs shall apply to all companies with respect to that specific product or group of products.

2.2.1.5.3 Status of goods "developed in Brazil"

2.67.
Products that have obtained the status of "developed in Brazil" are subject to additional tax reductions.
2.68.
Two requirements must be met in order for information technology and automation goods to be considered "developed in Brazil":

a. Products must comply with the specifications, rules and standards laid out in Brazilian legislation; and

b. The specifications, projects and developments must have been carried out in Brazil by technicians of proven skill in such activities who are residents and domiciled in Brazil.171

2.69.
Applications for the status of "developed in Brazil" must be addressed to the MCTI.

2.2.1.6 Related memorandum

2.70.
No related memorandum is found on the record.

2.2.2 The PADIS programme

2.2.2.1 Introduction

2.71.
The PADIS programme exempts (through zero rates) accredited companies from paying certain taxes with respect to semiconductors and information displays (displays), as well as inputs, tools, equipment, machinery, and software for the production of semiconductors and displays ("production goods").
2.72.
The tax exemptions (through zero rates) provided for in the PADIS programme entered into force in 2007 and are in effect until 22 January 2022.172

2.2.2.2 Tax treatment

2.73.
Pursuant to the PADIS programme, the following tax rates shall be reduced to zero:

a. For imports or sales in the Brazilian market of machinery, apparatus, instruments, equipment, computation tools (software) and inputs used in certain activities provided that they are incorporated into fixed assets of the companies accredited under the PADIS programme that purchase/ import them173:

i. Social Integration Programme (PIS) and Civil Service Asset Formation Programme (PASEP) contributions and the Contribution to Social Security Financing (COFINS) contributions levied on the revenues of the seller when goods are purchased by companies accredited under the PADIS programme174;

ii. PIS/PASEP-Importation and COFINS-Importation contributions levied on imports by companies accredited under the PADIS programme175;

iii. IPI tax levied on imported or domestic goods when imported or purchased in the Brazilian market by companies accredited under the PADIS programme176; and

iv. CIDE contributions on remittances sent abroad by companies accredited under the PADIS programme to pay for the use of patents or trademarks and for the provision of technology and technical assistance related to the abovementioned activities.177

v. Import tax on machinery, apparatus, instruments, equipment, computation tools (software) to be incorporated into the companies accredited under the PADIS programme as well as on raw materials and inputs might also be reduced to zero when the importer is a company accredited under the PADIS programme.178

b. For sales of semiconductor electronic devices, information displays and inputs and equipment intended for the manufacture of electronic semiconductor devices and information displays by companies accredited under the PADIS programme in the Brazilian market179:

i. PIS/PASEP and COFINS contributions on the revenue or income earned and on the revenue generated from the sale of projects (design) by companies accredited under the PADIS programme180;

ii. IPI tax levied on shipments from the industrial establishment181; and

iii. The rate of the income tax and duties on profits from exploitation and on the revenue generated from the sale of projects (design) by the PADIS programme.182

2.2.2.3 Product coverage

2.74.
The products covered under the PADIS programme are the following:

a. Semiconductor electronic devices183;

b. Information displays184;

c. Inputs and equipment intended for the manufacture of electronic semiconductor devices and information displays and manufactured according to the relevant PPB185;

d. Machinery, appliances, instruments and equipment for incorporation into the fixed assets of the accredited purchaser/ importer, intended for activities related to final products (i.e. those listed in Annex II of Decree 6,233/2007)186;

e. Inputs intended for activities related to final products (i.e. those listed in Annex III of Decree 6,233/2007)187; and

f. Computational tools (software) intended for activities related to final products (i.e. those listed in Annex IV of Decree 6,233/2007).188

2.2.2.4 Eligible companies

2.75.
The tax exemptions (through zero rates) provided for in the PADIS programme shall be accorded to legal persons previously accredited by the Brazilian Federal Revenue Service (RFB)189 that:

a. Import or sell in the Brazilian market machinery, apparatus, instruments, equipment, computation tools (software) and inputs to be incorporated into their fixed assets, provided that they are used in activities related to final products listed in Annex II of Decree 6,233/2007190; and

b. Sell in the Brazilian market semiconductor electronic devices, information displays and inputs and equipment intended for the manufacture of electronic semiconductor devices and information displays.

2.2.2.5 Requirements for eligibility

2.76.
In order to obtain accreditation and become companies accredited under the PADIS programme, legal persons must meet the following requirements:

a. Invest in research and development (R&D)191:

Companies accredited under the PADIS programme must invest annually at least 5% of their gross sales in the Brazilian market in R&D activities in Brazil.192 The taxes levied on the sales of semiconductor electronic devices, information displays and inputs and equipment intended for the manufacture thereof as well as the purchase value of products incentivized under PADIS must be deducted from the gross sales in the Brazilian market.193 At least 1% out of the 5% shall be directed toward official or accredited research institutes or centres or Brazilian education entities, which are registered with the CATI or the Committee of Research and Development Activities of Amazonia (CAPDA).194

b. Engage in the following activities:

i. With respect to semiconductor electronic devices195

· Concept, development and design;

· Diffusion or physical-chemical processing; or

· Cutting, encapsulation and testing.

ii. With respect to information displays196

· Concept, development and design;

· Manufacture of photosensitive, photo or electroluminescent elements and light emitting diodes; or

· Final assembly of displays and electrical and optical testing.

iii. With respect to inputs and equipment intended for the manufacture of electronic semiconductor devices and information displays: manufacture in accordance with the relevant PPBs.197

2.77.
It must be noted that, as far as information displays are concerned, either the activities of concept, development and design, or the manufacture of photosensitive, photo or electroluminescent elements and light emitting diodes, must be performed in Brazil in order to obtain the concerned tax treatment on the PIS/PASEP and COFINS contributions and the IPI tax. Similarly, the manufacture of inputs and equipment intended for the manufacture of electronic semiconductor devices and information displays must be performed in Brazil in order to obtain the reductions on the PIS/PASEP and COFINS contributions and the IPI tax.198
2.78.
The accredited company must exclusively perform one or some of the activities mentioned in paragraph 2.76 above.199
2.79.
Investment in R&D and the activities mentioned above with respect to semiconductor electronic devices, information displays and inputs and equipment must be made in accordance with a project approved by the MCTI and the MDIC.200
2.80.
Once accreditation is obtained, accredited companies shall submit reports annually to the Ministry of Science, Technology and Innovation in order to demonstrate compliance with the investment obligation.201 Failure to meet the established minimum percentage would result in an obligation to invest the residual amount in the National Fund for Scientific and Technological Development, FNDCT (CT-INFO or CT-Amazonia) as well as a fine and interest.202 Failure to comply with the stated obligation would result in the company having to pay the income tax and duties on profits, together with interest and penalties, including those imposed on contributions and unpaid taxes.203 Accreditations under PADIS can be suspended, among other reasons, if accredited companies do not comply with their investment commitments in R&D in Brazil.204 Suspensions of the accreditation shall become cancellations if the company does not address the violation within 90 days from the suspension notification205 or if a company incurs two suspensions in less than two years.206

2.2.2.6 Related memorandum

2.81.
Interministerial Explanatory Memorandum No 00008/2007 by the Ministry of Finance, the Ministry of Science and Technology and the Ministry of Development, Industry and Trade describes the aim of the PADIS programme as follows:

The aim of establishing PADIS is to encourage the setting-up in Brazil of companies involved in the conception, development, design and manufacturing of electronic semiconductor devices and displays, where the latter are to be used as inputs in electronic equipment, with technology based on liquid crystal components - LCD, photoluminescent (plasma display panels - PDP), electroluminescent (light emitting diodes - LED, organic light emitting diodes - OLED or thin film electroluminescent displays - TFEL) or similar with electric field emitting microstructure.207

2.2.3 The PATVD programme

2.2.3.1 Introduction

2.82.
The PATVD programme exempts accredited companies from paying certain taxes with respect to radio frequency signal transmitting equipment for digital television ("digital television transmission equipment"), as well as machinery, apparatus, instruments, equipment, inputs and software for the production of digital television transmission equipment ("production goods").
2.83.
The tax exemptions (through zero rates) provided for in the PATVD programme entered into force in 2007 and are in effect until 22 January 2017.208

2.2.3.2 Tax treatment

2.84.
Pursuant to the PATVD programme, the following tax rates shall be reduced to zero:

a. For imports or purchases in the Brazilian market of new machinery, apparatus, instruments, equipment, computation tools (software) and inputs used in the manufacture of digital television transmission equipment provided that they are incorporated into fixed assets of the companies accredited under the PATVD programme that purchase/ import them:

i. PIS/PASEP and COFINS contributions levied on the revenues of the seller when goods are purchased by companies accredited under the PATVD programme209;

ii. PIS/PASEP-Importation and COFINS-Importation contributions levied on imports by companies accredited under the PATVD programme210;

iii. IPI tax levied on imported or domestic goods when imported or purchased in the Brazilian market by companies accredited under the PATVD programme211; and

iv. CIDE contributions on remittances sent abroad by companies accredited under the PATVD programme to pay for the use of patents or trademarks and for the provision of technology and technical assistance related to the development and manufacture of digital television transmission equipment.212

v. Import tax might also be reduced to zero when the importer is a company accredited under the PATVD programme.213

b. For sales of digital television transmission equipment by companies accredited under the PATVD programme in the Brazilian market214:

i. PIS/PASEP and COFINS contributions on the revenue or income earned215; and

ii. IPI tax levied on shipments from the industrial establishment.216

2.2.3.3 Product coverage

2.85.
The products covered under the PATVD programme are the following:

a. Digital television transmission equipment (MCN code 8525.50.2)217;

b. Machinery, appliances, instruments and equipment for incorporation into the fixed assets of the purchaser/ importer, intended for the manufacture of digital television transmission equipment218;

c. Inputs for the manufacture of digital television transmission equipment219; and

d. Computational tools (software) for the manufacture of digital television transmission equipment.220

2.2.3.4 Eligible companies

2.86.
The tax exemptions (through zero rates) provided for in the PATVD programme shall be accorded to legal persons previously accredited by the RFB221 that:

a. Import or sell in the Brazilian market new machinery, apparatus, instruments, equipment, computation tools (software) and inputs to be incorporated into their fixed assets provided that they are used in the manufacture of digital television transmission equipment; and

b. Sell in the Brazilian market digital television transmission equipment.

2.2.3.5 Requirements for eligibility

2.87.
In order to obtain accreditation and become accredited under the PATVD programme, legal persons must meet the following requirements:

a. Invest in research and development (R&D)222

Companies accredited under the PATVD programme must invest annually at least 2.5% of their gross sales in the Brazilian market, after deduction of taxes levied on sales of transmission equipment, in R&D activities in Brazil.223 At least 1% out of the 2.5% shall be directed toward official or accredited research institutes or centres or Brazilian education entities, which are registered with the CATI or CAPDA.224

The investment in R&D must be in relation to digital television transmission equipment, as well as in software and inputs for digital television transmission equipment.225

b. Engage in developing and manufacturing activities of digital television transmission equipment (MCN code 8525.50.2)226; and

c. Either comply with the relevant PPB227 or, alternatively, meet the criteria for a product to be considered "developed in Brazil".228

2.88.
Investment in R&D and the development and manufacture of digital television transmission equipment must be made in accordance with a project approved by the MCTI and the MDIC.229
2.89.
Once accreditation is obtained, accredited companies shall submit reports annually to the Ministry of Science, Technology and Innovation in order to demonstrate compliance with the investment obligation.230 Failure to meet the established minimum percentage would result in an obligation to invest the residual amount in the National Fund for Scientific and Technological Development, FNDCT (CT-INFO or CT-Amazonia) as well as a fine and interest.231 Failure to comply with the stated obligation would result in the company having to pay interest and penalties on late payments in relation to the contributions and unpaid taxes.232 Accreditations under PATVD can be suspended if accredited companies do not comply with the PPBs or with their investment commitments in R&D in Brazil, among other reasons.233 Suspensions of accreditation shall become cancellations if the company does not address the violation within 90 days from the suspension notification234 or if a company incurs two suspensions in less than two years.235

2.2.3.6 Related memorandum

2.90.
Interministerial Explanatory Memorandum No. 00008/2007 by the Ministry of Finance, the Ministry of Science and Technology and the Ministry of Development, Industry and Trade describes the aim of the PATVD programme as follows:

The aim of establishing PATVD is to encourage the setting-up in Brazil of companies involved in the development and manufacturing of radio-frequency transmitter equipment for digital television.236

2.2.4 The Digital Inclusion programme

2.2.4.1 Introduction

2.91.
The Digital Inclusion Programme exempts (through zero rates) Brazilian retailers from paying PIS/PASEP and COFINS contributions with respect to the sale of certain digital consumer goods produced in Brazil in accordance with the relevant PPBs.
2.92.
The Digital Inclusion programme entered into force in 2005 and was supposed to be in force until 31 December 2018.237

2.2.4.2 Tax treatment

2.93.
The Digital Inclusion programme reduces to zero the PIS/PASEP and COFINS contributions on the gross income from the retail sale in Brazil of certain digital consumer goods.238

2.2.4.3 Product coverage

2.94.
The products covered under the Digital Inclusion programme are the following:

a. Digital processing units (TIPI code 8471.50.10) with a maximum retail sale value of R$ 2,000 (Brazilian reais), produced in Brazil in accordance with the relevant PPB;

b. Automatic, digital, portable data processing machines with weight of less than 3.5 kg, with screen area greater than 140 cm² (TIPI codes 8471.30.12, 8471.30.19 or 8471.30.90) with a maximum retail sale value of R$ 4,000, produced in Brazil in accordance with the relevant PPB;

c. Automatic data processing machines, working in systems (TIPI code 8471.49), containing exclusively: a) one digital processing unit (TIPI code 8471.50.10); b) one monitor (video output unit) (TIPI code 8471.60.7); c) one keyboard (input unit) (TIPI code 8471.60.52); and d) one mouse (input unit) (TIPI code 8471.60.53) and sold jointly at a maximum retail sale value of R$ 4,000, produced in Brazil in accordance with the relevant PPB;

d. Keyboard (input unit; TIPI code 8471.60.52) and mouse (input unit; TIPI code 8471.60.53), when sold with a digital processing unit with TIPI code 8471.50.10, with a maximum retail sale value of R$ 2,100 jointly;

e. Modems (TIPI codes 8517.62.55, 8517.62.62 or 8517.62.72), with a maximum retail sale value of R$ 200;

f. Portable, automatic data processing machines, without a keyboard, which have a central processing unit with data input and output through a touch screen with area greater than 140 cm2 and less than 600 cm2, and which do not have a remote control function (Tablet PC) (TIPI code 8471.41) with a retail sale value of less than R$ 2,500, produced in Brazil in accordance with the relevant PPB;

g. Cellular network, smartphone type mobile telephones which permit high-speed Internet access (TIPI code 8517.12.31), with a retail sale value of less than R$ 1,500, which in addition to being produced in Brazil in accordance with the relevant PPB, must meet the technical requirements set out in an act from the Ministry for Communications239; and

h. Client terminal equipment (digital routers) (TIPI codes 8517.62.41 and 8517.62.77) with a retail sale value of less than R$ 150, developed and produced in Brazil in accordance with the relevant PPB.240

2.2.4.4 Eligible companies

2.95.
The Digital Inclusion programme provides for zero rates with respect to PIS/PASEP and COFINS contributions for companies that sell in Brazil at retail level certain digital consumer goods produced in accordance with the relevant PPBs (and subject to certain other conditions). Companies subject to the Simples tax regime fall outside the scope of this programme.241

2.2.4.5 Related memoranda

2.96.
No related memorandum is found on the record.

2.2.5 The INOVAR-AUTO programme

2.2.5.1 Introduction

2.97.
The Programme to Promote Technological Innovation and Densification of the Productive Chain of Motor Vehicles (Programa de Incentivo à Inovação Tecnológica e Adensamento da Cadeia Produtiva de Veículos Automotores, hereinafter the INOVAR-AUTO programme) provides for a reduction of the IPI tax burden on certain motor vehicles (i) either through presumed IPI tax credits granted to accredited companies; (ii) or through reduced IPI tax rates on the importation of vehicles originating in certain countries, as well as on certain domestic vehicles.
2.98.
The INOVAR-AUTO programme started in 2012 and shall remain in effect until 31 December 2017.242
2.99.
Prior to the entry into force of the INOVAR-AUTO programme, which constitutes the measure at issue in this dispute, Brazil introduced Provisional Measure 540 in August 2011 whereby it reduced the IPI tax on certain automotive products provided that specific conditions were met. This Provisional Measure, which became Law 12,546/2011243, was subsequently implemented by Decree 7,567/2011.244

2.2.5.2 Tax treatment

2.100.
INOVAR-AUTO provides for a reduction of the IPI tax due on certain motor vehicles through two instruments: (i) presumed IPI tax credits granted to accredited companies; and (ii) reduced IPI tax rates on the importation of vehicles originating in certain countries as well as on certain domestic vehicles.245
2.101.
First, accredited companies under the INOVAR-AUTO programme are entitled to tax advantages consisting of "presumed tax credits" to fully or partially offset the IPI tax on motor vehicles listed in Annex I of Decree 7,819/2012 up to 30 percentage points.
2.102.
Second, INOVAR-AUTO provides for reduced IPI tax rates in the following instances:

a. For vehicles listed in Annex I of Decree 7,819/2012, when imported by companies accredited as "domestic manufacturers" or "investors" from countries that are signatories to the agreements established by Legislative Decree 350 of 21 November 1991, Decree 4,458 of 5 November 2002 and Decree 6,500 of 2 July 2008246:

From 1 January 2013, a 30 percentage point reduction in the applicable IPI tax rate on these vehicles shall apply until 31 December 2017.247

This reduction shall apply to imports by accredited manufacturers or investors248 at the time of customs clearance and the exit from the importing establishment249 and only for products of the same brand as that of vehicles manufactured by the accredited company.250 Limitations, requirements and quantitative restrictions set out in the agreements referred to in Legislative Decree 350 of 21 November 1991251, Decree 4,458 of 5 November 2002252, and Decree 6,500 of 2 July 2008253 shall also apply.254

b. For vehicles listed in Annex I of Decree 7,819/2012 when imported by any company (including both accredited and unaccredited companies) under the agreement established by Decree 6,518 of 30 July 2008 and Decree 7,658 of 23 December 2011255:

2.103.
A 30 percentage point reduction in the applicable IPI tax rate shall apply to these vehicles.
2.104.
This IPI tax reduction, due to expire on 31 December 2017256, shall apply at the time of customs clearance and the exit from the importing establishment.257 Limitations, requirements and quantitative restrictions set out in the agreement referred to in Decree 6,518/2008 and Decree 7,658/2011 shall apply.258

a. For vehicles listed in Annex I of Decree 7,819/2012 imported directly by an accredited company, subject to limitations per calendar year259:

A 30 percentage point reduction in the applicable IPI tax rate shall apply to a limited number of vehicles listed in Annex I when imported by accredited companies.260 The maximum number of vehicles covered by this tax reduction is either 4,800 per calendar year or the arithmetic mean of the vehicles imported by the company between 2009 and 2011, whichever is lower.261 Products listed in Annex VI of Decree 7,819/2012 are explicitly excluded from the scope of this IPI tax reduction.262

This IPI tax reduction shall apply at the time of customs clearance and the exit from the importing establishment.263

b. For certain national motor vehicles264:

Additional Note 87-5 of the TIPI in Annex IX of Decree 7,819/2012 provides for reduced IPI tax rates for vehicles manufactured in Brazil with the following characteristics: (i) manual transmission, (ii) transfer case, (iii) chassis independent from the bodywork, (iv) minimum clear height from the ground of the front or rear axles of 200 mm, (v) minimum clear height from the ground between the axles of 300 mm, (vi) minimum approach angle of 35º, (vii) minimum departure angle of 24º, (viii) minimum ramp angle of 28º, (ix) resurfacing capacity from 500 mm, (x) combined total gross weight of at least 3000 kg, (xi) maximum weight in running order of up to 2100 kg, (xii) designed for military use or agro-industrial work, and (xiii) classified under codes 8703.32.10265 and 8703.33.10.266

i. The reduced IPI tax rate indicated above is set at 45% between 1 January 2013 and 31 December 2017. From 1 January 2018, the reduced IPI tax rate shall be 15%.267

2.105.
The Panel also notes that certain tax reductions are provided for vehicles listed in Annex I of Decree 7,819/2012 manufactured by companies whose annual production volume is less than 1,500 units and annual turnover is less than R$ 90,000,000 (90 million real)268, for vehicles characterized as quadricyles and tricycles269, and for any company manufacturing products under certain TIPI tariff codes by assembling the body on a chassis.270 These particular tax reductions are not relevant to the present dispute.

2.2.5.3 Product coverage

2.106.
The presumed tax credits and the tax reductions under the INOVAR-AUTO programme apply to the following products:

a. With respect to presumed IPI tax credits granted to accredited companies: motor vehicles listed in Annex I of Decree 7,819/2012.271

b. With respect to IPI tax reductions:

i. Vehicles listed in Annex I of Decree 7,819/2012 originating from countries that are signatories to the agreements established by Legislative Decree 350 of 21 November 1991, Decree 4,458 of 5 November 2002 and Decree 6,500 of 2 July 2008;

ii. Imported vehicles from Uruguay listed in Annex VIII of Decree 7,819/2012;

iii. Imported vehicles listed in Annex VIII of Decree 7,819/2012 up to 4,800 vehicles/year or the arithmetic mean of the imported vehicles by the company between 2009 and 2011, whichever is lower;

iv. Vehicles manufactured in Brazil with certain characteristics falling under codes 8703.32.10 and 8703.33.10.272

2.107.
The Panel notes that certain tax reductions apply to vehicles listed in Annex VIII of Decree 7,819/2012 manufactured by companies with annual production volume less than 1,500 units and annual turnover less than R$ 90,000,000 (90 million real); vehicles listed in Annex VIII of Decree 7,819/2012 characterized as quadricyles and tricycles; and vehicles manufactured by assembling the body on a chassis and classified under the following TIPI tariff codes: 8704.2, 8704.3, 8704.90.00, 8702.10.00 Ex 02, and 8702.90.90 Ex 02. These particular tax reductions are not relevant to the present dispute.

2.2.5.4 Beneficiaries

2.108.
Beneficiaries of the INOVAR-AUTO programme differ depending on whether the reduction of the IPI tax burden on motor vehicles takes place (i) through presumed IPI tax credits; or (ii) through reduced IPI tax rates.
2.109.
To be entitled to presumed IPI tax credits, a company must be accredited as a "domestic manufacturer", an "investor", or an "importer/distributor", as explained in further detail below.
2.110.
To be entitled to the reduced IPI tax rates, a company must fall under one of the following instances of IPI tax reduction:

a. Be accredited as a "domestic manufacturer" or "investor" (that imports certain vehicles from countries that are signatories to the relevant agreements)273;

b. Import certain vehicles from Uruguay under the relevant agreements274;

c. Be accredited as an "importer/distributor" of certain vehicles under the INOVAR-AUTO programme275; or

d. Manufacture in Brazil motor vehicles that meet certain technical features.276

2.111.
The Panel notes that companies that manufacture certain vehicles and have an annual production volume of less than 1,500 units and an annual turnover of less than R$ 90,000,000 (90 million real),277 companies that manufacture vehicles characterized as quadricyles and tricycles278, and companies that manufacture vehicles under certain TIPI tariff codes by assembling the body on a chassis279 also benefit from reduced IPI tax rates. These particular tax reductions are not relevant to the present dispute.

2.2.5.5 Requirements for eligibility

2.112.
As indicated above, all companies using presumed IPI tax credits, and certain companies using reduced IPI tax rates, must obtain one of three forms of accreditation. Companies are subject to different requirements depending on the type of accreditation they apply for.

2.2.5.5.1 Accreditation requirements

2.113.
INOVAR-AUTO provides for three different types of accreditations280 available for economic operators, in order to be entitled to presumed IPI tax credits:

a. Accreditations for companies that manufacture in Brazil products listed in Annex I of Decree 7,819/2012 ("domestic manufacturers")281;

b. Accreditations for companies that market in Brazil products listed in Annex I of Decree 7,819/2012 and do not engage in manufacturing activities in Brazil ("importers/distributors"282)283; and

c. Accreditation for companies whose projects for establishing factories in Brazil, or in the case of companies already established in Brazil, projects for setting up new factories or industrial projects, to produce new models284 of products listed in Annex I of Decree 7,819/2012 ("investors"), have been approved.285

2.114.
To obtain accreditation, a company must comply with certain requirements of both a general and specific nature. All such companies must comply with the same two general requirements, and each also must comply with certain additional specific requirements that vary by the type of accreditation. The details of these requirements are set forth below.
2.115.
A company applying for accreditation as a "domestic manufacturer" shall comply with the two general requirements286 as well as three out of four specific requirements, one of which must be the performance of a minimum number of defined manufacturing and engineering infrastructure activities in Brazil.287 Such a company also shall have to provide an estimate of its expenditure on R&D, engineering, basic industrial technology and capacity-building of suppliers in Brazil in relation to its total gross revenue.288
2.116.
A company applying for accreditation as an "importer/distributor" shall comply with the two general requirements and the following three specific requirements: (i) investments in R&D in Brazil; (ii) expenditure on engineering, basic industrial technology and capacity-building of suppliers in Brazil; and, (iii) participation in the vehicle labelling programme by National Institute of Metrology, Quality and Technology (INMETRO).289 Such a company shall submit its expected expenditure and investment to be made in Brazil in the above-mentioned areas290 and shall demonstrate that it is authorized to import, sale, supply technical assistance services, organize a distribution network and use the brands of the manufacturer with regard to the imported vehicles in Brazil.291
2.117.
A company applying for accreditation as an "investor" shall submit to the MDIC an investment project containing a description and the technical features of the vehicles to be imported and manufactured.292 Accreditation shall be granted once the investment project is approved by that Ministry.293 An "investor" shall be required to apply for a specific accreditation for every factory, plant or industrial project that it plans to establish. Such accreditations can be renewed once, subject to compliance with the physical-financial timetable for the investment project.294
2.118.
All of the rights and obligations of an accredited company are detailed in its individual Terms of Commitment295, which should also contain: (i) criteria for the assessment, verification and monitoring of the commitments undertaken; (ii) terms and conditions for the monitoring of commitments and the calculation of presumed IPI tax credits; and, (iii) the methodology for calculation of the value and characteristics of strategic inputs and tools for purposes of the determination of the presumed IPI tax credit accrued as a result of expenditure on these two items, including procedures for the calculation of the value, verification and monitoring and the definition of the goods considered as "strategic inputs" pursuant to Article 12(I) of Decree 7,819/2012.296
2.119.
Accredited companies must submit quarterly monitoring reports in accordance with Annexes III, IV and V of Implementing Order 113/2013 to the Secretary of Production Development of the Ministry of Development, Industry and Foreign Trade.297
2.120.
Failure to comply with the requirements or commitments undertaken shall result in the cancellation of a company's accreditation.298 In the case of presumed IPI tax credits, cancellation shall result in the company being obliged to pay the IPI tax that was otherwise due on the basis of the presumed credit used plus an amount set forth in the corresponding tax legislation.299
2.121.
The two general requirements that all companies seeking accreditation must meet are as follows:

a. Compliance with all tax obligations at the federal level300; and

b. Commitment to achieve certain minimum levels of energy efficiency for products marketed in Brazil.301

2.122.
To obtain accreditation, each company also must meet some combination of the following specific requirements:

a. Performance of a minimum number of defined manufacturing and engineering infrastructure activities302:

These activities must (i) be carried out directly by the accredited company or through third parties; (ii) cover at least 80% of manufactured vehicles; and (iii) be subject to the following schedule:303

Minimum number of manufacturing and engineering infrastructure activities to be performed in Brazil304
Manufacture of passenger cars and light commercial vehiclesManufacture of trucksManufacture of chassis fitted with enginesManufacture of automobiles in the situation referred to in Article 12 §5(III)305
(Total number of manufacturing and engineering infrastructure activities: 12) (Total number of manufacturing and engineering infrastructure activities: 14) (Total number of manufacturing and engineering infrastructure activities: 11)
Calendar year
2013 8 9 7 6
2014 9 10 8 6
2015 9 10 8 7
2016 10 11 9 7
2017 10 11 9 8

b. Investment in research and technological development (R&D) in Brazil:

The minimum percentage of gross revenues for sale of goods and services306 which accredited companies must invest in R&D in Brazil is as follows: 0.15% in 2013, 0.30% in 2014, and 0.50% in 2015-2017.307

The activities covered by these investments are (i) directed basic research, (ii) applied research, (iii) experimental development, (iv) technical support services and (v) design, planning, construction or modernisation of laboratories and infrastructure for their operation, and acquisition of national equipment, services and spare parts308 needed to carry out these activities.309

Donations of goods and services are not considered to be expenditure.310 Investments in the FNDCT can fall within the scope of this requirement.311

The investment must be made in Brazil (i) directly by the legal person that benefits from the INOVAR-AUTO programme, (ii) through an accredited supplier, or (iii) by means of a contract with a university, research institute, specialised company or self-employed inventor pursuant to Article 2(ix) of Law 10,973 of 2 December 2004.312

c. Expenditure on engineering, basic industrial technology and capacity-building of suppliers in Brazil:

The minimum percentage of gross revenues for sale of goods and services313 which accredited companies must spend in engineering, basic industrial technology and capacity-building of suppliers in Brazil is as follows: 0.5% in 2013, 0.75% in 2014, and 1% in 2015-2017.314

The activities covered by this expenditure are (i) engineering development, (ii) basic industrial technology, (iii) training of personnel, (iv) product development, (v) design, planning, construction or modernisation of laboratories, applied research centres, test tracks and infrastructure for their operation, and acquisition of national equipment, services and spare parts315 needed to carry out these activities, (vi) development of tools316, moulds and patterns for moulds, matrices and devices, and industrial and quality control instruments and apparatus, and their accessories and parts, used in the production process, (vii) R&D activities in relation to industrial tooling and engineering and (viii) capacity building of suppliers.317

Donations of goods and services are not covered by this provision.318 Investments in the FNDCT can fall within the scope of this requirement.319

Expenditure must be made in Brazil (i) directly by the legal person that benefits from the INOVAR-AUTO programme, (ii) through an accredited supplier, or (iii) by means of a contract with a university, research institute, specialised company or self-employed inventor pursuant to Article 2(ix) of Law 10,973 of 2 December 2004.320

d. Participation in the Brazilian Vehicle Labelling Programme established by INMETRO:

The minimum percentage of models of products listed in Annex I of Decree 7,819/2012 which are marketed by the company and subject to this requirement is the following: 36% in 2013, 49% in 2014, 64% in 2015, 81% in 2016 and 100% in 2017.321

2.2.5.5.2 Presumed IPI tax credits

2.2.5.5.2.1 Requirements to be entitled to presumed IPI tax credits

2.123.
To be entitled to accrue and use presumed IPI tax credits, companies must first obtain an accreditation granted by the MDIC, pursuant to the requirements outlined above.

2.2.5.5.2.2 Accrual and calculation of presumed IPI tax credits

Accredited "domestic manufacturers" and "importers/distributors"

2.124.
Companies accredited as "domestic manufacturers" and "importers/distributors" can accrue presumed IPI tax credits by making expenditures on the following items in Brazil: (i) strategic inputs322; (ii) tools323; (iii) research; (iv) technological development; (v) technological innovation; (vi) contributions to the FNDCT; (vii) capacity-building of suppliers324; and, (viii) basic engineering and industrial technology.325
2.125.
Concerning expenditure on strategic inputs and tools in Brazil, before 1 October 2014 the presumed IPI tax credit was the result of multiplying the amount of expenditure by a coefficient that varies depending on the type of vehicle and the calendar year.326Expenditure on strategic inputs and tools incurred directly in the process of production of auto parts by the accredited company shall be taken into account, based on a pro rata share of the cost of the industrial activities in proportion to the production in question.327
2.126.
From 1 October 2014, the calculation of the presumed IPI tax credit accrued from expenditure on strategic inputs and tools in Brazil incorporates a new element introduced by Implementing Order MDIC 257/2014: the deductible part. The deductible part is the sum of the value of imported inputs by Tier 1328 and Tier 2329 suppliers. Implementing Order MDIC 257/2014 establishes a traceability system whereby suppliers of strategic inputs and tools to accredited companies (Tier 1) (and their direct suppliers, i.e. Tier 2) are required to provide information to the purchasing accredited companies on the value and characteristics of the products supplied. Suppliers shall indicate not just the value of the invoices but also the value of the deductible part.330 This deductible part shall be deducted from the total value of expenditure on strategic inputs and tools made in Brazil, which constitutes the base to calculate the presumed IPI tax credit. The accredited companies will use this information when filing their tax returns.
2.127.
The calculation of the deductible part differs depending on whether it is a Tier 1 or a Tier 2 automotive supplier. The deductible part of Tier 2 inputs is calculated based on the Tax Situation Codes (CST) indicated in the tax invoices issued to Tier 1 suppliers.331 If the CST indicated in the tax invoice is 1, 2, 6, 7 or 8, then 100% of the value is deducted from the expenditure used to calculate the presumed IPI tax credit.332 If the CST is 3 or 4, 50% of the value is deducted from the expenditure used to calculate the presumed IPI tax credit.333 If the CST is 0 or 5, no deduction is applied and 100% of the expenditure incurred counts towards calculating the presumed IPI tax credit.334 The deductible part of Tier 1 inputs is the actual value of direct imports (Cost, Insurance & Freight (CIF) value) plus the import tax (II) plus the Tier 2 deductible part (i.e. imported content).335
2.128.
Regarding expenditure made in Brazil (referred to as "made in the country" in the legislation) on research; technological development; technological innovation; and payments to the FNDCT336, the presumed credit shall correspond to 50% of the expenditure, limited to 2% of the total gross proceeds from sales of goods and services of the second month prior to the calculation of the credit.337
2.129.
Regarding expenditure made in Brazil ("made in the country") on payments to the FNDCT pursuant to the specific legislation; capacity-building of suppliers; and engineering and basic industrial technology338; the presumed credit shall correspond to 50% of the expenditure which exceeds 0.75%, up to a limit of 2.75% of the total gross proceeds from sales of goods and services of the second month prior to the calculation of the credit.339
2.130.
Expenditure on the acquisition of software, equipment and spare parts will be considered to be expenditure "made in the country" provided that the software, equipment and spare parts are used in the laboratories indicated in the Terms of Commitment.340

Accredited investors

2.131.
Companies accredited as "investors" shall calculate their presumed IPI tax credits by applying a 30% tax rate on the IPI tax base on the release of vehicles listed in Annex I of Decree 7,819/2012 imported by the import branch of the accredited company.341 This applies 24 months following the first accreditation and it is linked to complying with the physical-financial timetable foreseen in the investment project.342 The vehicles covered under this treatment are those covered in the approved investment project343 and are limited to one twenty-fourth of the annual production capacity set out in the approved investment project multiplied by the remaining months in the calendar year.344 Furthermore, the IPI tax usually charged on imported vehicles at the time of customs clearance is suspended.345

2.2.5.5.2.3 Use of presumed IPI tax credits

2.132.
The rules governing the use of the presumed IPI tax credits differ depending on whether the tax credits (i) result from expenditure in Brazil on strategic inputs and tools; (ii) result from expenditure in Brazil on any item set out in Article 12 of Decree 7,819/2012 other than strategic inputs and tools; or (iii) have been accrued by accredited investors.
2.133.
First, presumed IPI tax credits resulting from expenditure made in Brazil on strategic inputs and tools can be used from 1 January 2013 to offset the IPI tax due on the exit from the establishment of the products set out in Annex I of Decree 7,819/2012 which either have been manufactured by accredited "domestic manufacturers" or are marketed by accredited "importers/distributors".346 The use of tax credit is limited to 30% of the tax base.347
2.134.
If at the end of each calendar month there is a remaining amount of IPI tax credit after using the credit to offset the IPI tax due on the exit of the above-mentioned products, the remaining credit can be used to offset the IPI tax due on vehicles imported by the accredited company. In this case, the use of tax credit is also limited to 30% of the tax base and up to a maximum of 4,800 vehicles per calendar year.348
2.135.
Where an amount of IPI tax credit remains because of the two limits mentioned above (30% of the tax base or 4,800 vehicles per calendar year), it can be used in subsequent months until 31 December 2017.349
2.136.
Second, presumed IPI tax credits resulting from expenditure in Brazil on any item set out in Article 12 other than strategic inputs and tools350 can be used to offset the IPI tax due for operations in the internal market by the parent company of the juridical person.351
2.137.
If an amount of IPI tax credit remains after using the credit to offset the IPI tax due for operations in the internal market by the parent company of the juridical person, the parent company can transfer the remaining credit, in full or in part, to other industrial establishments (or establishments assimilated to an industrial one) of the same legal person.352 These establishments will be able to use the presumed IPI tax credit at the end of the month in which it was calculated353 and only to offset the IPI tax due; they will not be entitled to compensation or reparation in kind.354
2.138.
In case no tax is due for operations in the internal market by the parent company of the juridical person or there is a remaining amount of credit after paying the IPI tax for such operations or the operations of another industrial establishment, the rules governing reparation in kind and compensation shall apply.355
2.139.
Finally, accredited investors can use their presumed IPI tax credits to offset the IPI tax due on the exit of the products from the importing establishment of the accredited legal person subject to two limits.356 First, the maximum number of imported vehicles for which the tax credit can be applied is one forty-eighth of the expected annual production capacity set out in the approved investment project multiplied by the remaining number of months of the calendar year, including the month in which the accreditation was granted.357 The second limit relates to the commitment to comply with the physical-financial timetable of the investment project.358
2.140.
Any remaining amount of credit after offsetting the IPI tax due according to the previous paragraph can be used to offset the IPI tax due at the time the vehicles manufactured by the accredited company exit the factory, from the beginning of the marketing of the vehicles covered by the investment project up to an amount equivalent to 35% of the debit balance, calculated in each IPI tax calculation period.359
2.141.
In case there is still a remaining amount of tax credit after using it in the two situations described above, it can be used in the subsequent months, until 31 December 2017.360

2.2.5.5.3 Requirements to be entitled to reduced IPI tax rates

2.142.
In order to be entitled to reduced IPI tax rates, companies must:

a. Be accredited as "domestic manufacturers" or "investors" that import vehicles classified under the TIPI tariff codes listed in Annex I from countries that are signatories to the agreements established by Legislative Decree 350 of 21 November 1991, Decree 4,458 of 5 November 2002 and Decree 6,500 of 2 July 2008361; or

b. Import vehicles classified under the TIPI tariff codes listed in Annex VIII from Uruguay under the agreements established by Decree 6,518 of 30 July 2008 and Decree 7,658 of 23 December 2011362; or

c. Be accredited as companies that import products classified under the TIPI tariff codes listed in Annex VIII up to a certain limit per calendar year363; or

d. Manufacture in Brazil vehicles with certain characteristics classified under TIPI tariff codes 8703.32.10 and 8703.33.10.364

2.143.
As noted above, companies that manufacture certain vehicles and have an annual production volume of less than 1,500 units and an annual turnover of less than R$ 90,000,000 (90 million real),365 companies that manufacture vehicles characterized as quadricyles and tricycles366, and companies that manufacture vehicles under certain TIPI tariff codes by assembling the body on a chassis367 are also entitled to reduced IPI tax rates. However, these particular tax reductions are not relevant to the present dispute.

2.2.5.6 Monitoring system

2.144.
The INOVAR-AUTO programme uses a monitoring system (Sistema de Acompanhamento)368, also referred to as a traceability system, to ensure compliance with its requirements.
2.145.
Accredited companies that have made expenditures on strategic inputs and tools shall submit quarterly reports on such expenditure through the Monitoring System of the INOVAR-AUTO programme.369
2.146.
Accredited companies must submit quarterly monitoring reports to the Secretary of Production Development of the MDIC.370 In addition, for monitoring purposes, the Secretary of Production Development shall have access to the Integrated Foreign Trade System (Sistema Integrado de Comércio Exterior – SISCOMEX), which is an administrative tool that allows for the registration, monitoring and control of foreign trade operations in a single window.371

2.2.5.7 Related memorandum

2.147.
Interministerial Explanatory Memorandum No 00025/2012 describes the aim of the INOVAR-AUTO programme as follows:

[The INOVAR-AUTO programme] aims to strengthen the national automotive industry and create impulses [incentives] for an improvement of the technological content of the vehicles produced in the country.372

2.2.6 The PEC programme

2.2.6.1 Introduction

2.148.
Pursuant to the regime for "predominantly exporting companies" (the PEC programme), the IPI tax and the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions are suspended with respect to raw materials, intermediate goods and packaging materials purchased by predominantly exporting companies.
2.149.
The tax suspensions provided for in the PEC programme entered into force in December 2002 (in the case of the IPI tax) and April 2004 (in the case of the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions).373

2.2.6.2 Tax treatment

2.150.
The PEC programme provides for the suspension of the IPI tax as well as the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions with respect to raw materials, intermediate goods and packaging materials.374
2.151.
The above-mentioned suspensions apply on the purchases of raw materials, intermediate goods and packaging materials by legal persons registered (in the case of the IPI tax) or accredited (in the case of the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions) as predominantly exporting companies.375 The tax suspension applies:

a. at the time the product leaves the industrial establishment in the event of purchases in the domestic market376; or

b. at the time of the customs clearance in the event of imports.377

2.152.
The suspension expires, and the IPI tax, the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions become definitively non-due, upon exportation or sale in the domestic market of the final goods incorporating the raw materials, intermediate goods and packaging materials for which the taxes and contributions were suspended.378

2.2.6.3 Product coverage

2.153.
The products covered by the PEC programme are raw materials, intermediate goods and packaging materials purchased by a legal person registered or accredited as a predominantly exporting company, and used in the production of its final products.379
2.154.
No definition of the terms "raw materials", "intermediate goods" and "packaging materials" can be found in the Brazilian legislation.

2.2.6.4 Eligible companies

2.155.
Companies eligible for the tax treatment provided under the PEC programme are predominantly exporting companies.
2.156.
For purposes of the IPI tax suspension, a predominantly exporting company is a legal person whose gross revenue derived from exports to other countries during the calendar year immediately prior to the year of purchase of the covered products, exceeded 50% of its total gross revenue from the sales of goods and services over the same period, after taxes and other contributions levied on sales.380
2.157.
For purposes of the suspensions of the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions, a predominantly exporting company is a legal person whose gross revenue from exports, in the calendar year immediately prior to the year of purchase of the covered products, was equal to or greater than 50% of its total gross revenue from the sale of goods and services in the same period, after taxes and other contributions levied on sales.381
2.158.
Companies just starting activities in Brazil, or which did not reach the export percentage required in the previous year may be entitled to the PIS/PASEP and COFINS suspensions if they commit to reach and maintain the required export level for a period of three calendar years.382

2.2.6.5 Requirements for eligibility

2.159.
In order for predominantly exporting companies to be entitled to this tax treatment, the companies must meet the following requirements:

a. Registration (for IPI tax suspensions) / Accreditation (for suspensions of PIS/PASEP and COFINS, PIS/PASEP-Importation and COFINS-Importation contributions):

Companies must apply for prior registration/accreditation with the Federal Revenue Department Branch (DRF) or Tax Administration Federal Revenue Department Branch (DERAT).383 If the application is accepted, the registration/accreditation is granted through an Executive Declaratory Act (ADE) by the DRF or DERAT Delegate.384

b. Compliance with the export requirement:

As mentioned above, in order for a legal person to be registered as a predominantly exporting company, its gross revenue derived from exports to other countries during the calendar year immediately prior to the year of purchase of the covered products must exceed 50% (for IPI tax suspensions) or be equal to or greater than 50% (for suspensions of PIS/PASEP and COFINS, PIS/PASEP-Importation and COFINS-Importation contributions) of its total gross revenue from the sales of goods and services over the same period, after taxes and other contributions levied on sales.385

2.160.
As regards PIS/PASEP and COFINS suspensions, companies just starting activities in Brazil, or which did not reach the export percentage required in the previous year, may be entitled to the suspensions if they commit to reach and maintain the required export level for a period of three calendar years.386
2.161.
The registration and/or accreditation shall be cancelled, ex-officio, in the event that accreditation/registration requirements are not met, including the export requirement.387 In the event of cancellation, purchases of the covered products shall no longer benefit from the tax suspensions, and the suspended taxes, plus charges and applicable penalties, shall be due.

2.2.6.6 Related memorandum

2.162.
Explanatory Memorandum No. 00211 of 29 August 2002 by the Ministry of Finance explains, with respect to the implementation of the IPI tax suspension under the PEC Programme, as follows:

Article 31 establishes a suspension of the Imposto sobre Produtos Industrializados (IPI), with respect to mentioned products, in order to avoid the accumulation of credits, which implies providing for better operating conditions and cash flow for domestic companies, making them more competitive, including by reducing the prices of their products. Such suspension is extended to predominantly exporting companies in the terms and conditions to be established by the Secretariat of the Federal Revenue (Secretaria da Receita Federal), with a view to supporting national export activities.388

2.2.7 The RECAP programme

2.2.7.1 Introduction

2.163.
Pursuant to the "Special regime for the acquisition of capital goods for exporting companies" (RECAP programme), the PIS/PASEP, COFINS, PIS/PASEP-Importation or COFINS-Importation contributions are suspended with respect to new machinery, tools, apparatuses, instruments and equipment for incorporation into tangible fixed assets by predominantly exporting companies.
2.164.
The tax suspensions provided for in the RECAP programme entered into force in November 2005.389

2.2.7.2 Tax treatment

2.165.
The RECAP programme provides for the suspension of the PIS/PASEP, COFINS, PIS/PASEP-Importation and COFINS-Importation contributions with respect to purchases of new machinery, tools, apparatuses, instruments and equipment for incorporation into the tangible fixed assets, by legal persons registered as predominantly exporting companies.390
2.166.
The suspension becomes a zero rate once the export commitments have been achieved.391

2.2.7.3 Product coverage

2.167.
The products covered by the RECAP programme are new machinery, tools, apparatuses, instruments and equipment for incorporation to the tangible fixed assets by legal persons registered as predominantly exporting companies.392
2.168.
The Appendix to Decree 5,789/2006393 contains the list of goods that can be purchased under the RECAP programme.

2.2.7.4 Eligible companies

2.169.
Companies eligible for the tax treatment provided under the RECAP programme are predominantly exporting companies.
2.170.
For purposes of the RECAP programme, a predominantly exporting company is a legal person whose gross revenue from exports, in the calendar year immediately before the year in which it became a member of the programme, was equal to or greater than 50% of its total gross revenue from the sale of goods and services over the same period, and who commits to maintaining that percentage of exports for a period of two calendar years.394
2.171.
Companies just starting activities in Brazil, or which did not reach the export percentage required in the previous year, may be entitled to the suspensions if they commit to reach and maintain the required export level for a period of three calendar years.395

2.2.7.5 Requirements for eligibility

2.172.
In order for predominantly exporting companies to be entitled to these suspensions, they must meet the following requirements:

a. Accreditation:

Companies must apply for accreditation to the DRF or the DERAT.396 If the application is accepted, the accreditation is granted through an ADE by the DRF or DERAT Delegate.397

b. Compliance with the export requirement:

As mentioned above, in order for a legal person to be accredited as a predominantly exporting company, its gross revenue from exports, in the calendar year immediately before the year in which they became a member of the programme, must be equal to or greater than 50% of its total gross revenue from the sale of goods and services over the same period, and must commit to maintaining that percentage of exports for a period of two calendar years.398

Companies just starting activities in Brazil, or which did not reach the export percentage required in the previous year, may be entitled to the suspensions if they commit to reach and maintain the required export level for a period of three calendar years.399

2.173.
The accreditation shall be cancelled in the event that registration requirements are not met, including the export requirement.400 In the event of cancellation, purchases of the covered products shall no longer receive the tax suspensions, and the suspended taxes, plus charges and applicable penalties, shall be due.401
2.174.
Also, if an accredited company does not meet the export commitment, or does not incorporate the capital goods into its fixed assets, or sells the goods before the conversion of the suspension into a zero rate, it shall be required to pay the suspended contributions as well as interest and penalties.402

2.2.7.6 Related memorandum

2.175.
Interministerial Explanatory Memorandum No. 00084/2005 by the Ministry of Finance and the Ministry of Development, Industry and Trade explains, with respect to the RECAP Programme, as follows:

The creation of RECAP aims at encouraging investment on production and improving exports by correcting the distortions that generate a cost on the capital goods of predominantly exporting companies. This scheme suspends the incidence of the contribution to PIS/PASEP and of COFINS on sales and imports of new machines, appliances, instruments and equipment, listed in a regulation, when purchased by predominantly exporting companies. Like the REPES, the RECAP aims at eliminating the accumulation of PIS and COFINS credits for exporters, complementing the scheme already established by Article 40 of Law No. 10,865 of 30 April 2004, which suspends the levying of the contribution with regard to the sales of raw materials, intermediary products and packaging materials when they are destined to predominantly exporting legal persons.403

2.176.
Also, Interministerial Explanatory Memorandum No. 00025/2012 explains, with respect to the reduction to 50% of the required percentage of exports to qualify as a predominantly exporting company, as follows:

By extending the concept of predominantly exporting company to those who export 50% of their gross revenue, including those applying to (…) Recap, almost all Brazilian companies that generate credits to be reimbursed in kind in relation to their export activities are covered. Thus, it is expected that, at least at the federal level, the accumulation of export credits loses relevance. (…) Finally, the adoption of a measure that contributes to solve the serious problem of accumulation of tax credits arising from exports, which erodes the working capital of exporting companies and reduces their competitiveness, undoubtedly makes this proposal for a provisional measure to meet the requirements of emergency and relevance.404

3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

3.1.
The European Union requests the Panel to find that:405

i. The INOVAR-AUTO programme, as embodied and developed in the above-mentioned instruments and also as applied by the relevant Brazilian authorities, is inconsistent with Brazil's obligations under:

a. Article I:1 of the GATT 1994, inasmuch as motor vehicles originating in the European Union are not accorded immediately and unconditionally any advantage, favour, privilege or immunity granted to like products originating in certain other countries;

b. Article III:2 of the GATT 1994, inasmuch as motor vehicles of the European Union imported into Brazil are subject to a IPI tax burden in excess of that borne by like domestic products;

c. Article III:4 of the GATT 1994, inasmuch as motor vehicles, automotive components and tools of the European Union imported into Brazil are accorded less favourable treatment than that accorded to like products of Brazilian origin, as a result of the conditions for accreditation to the programme and the rules on the earning and use of tax credits;

d. Article III:5 of the GATT 1994, inasmuch as:

i. The conditions relating to the minimum number of manufacturing activities which manufacturers of motor vehicles need to perform in Brazil amount to an internal quantitative regulation relating to the processing of products, and such conditions require a specified proportion of the final product to be from domestic sources; and

ii. the conditions relating to the minimum number of manufacturing activities in Brazil also amount to an internal quantitative regulation that is applied so as to afford protection to domestic production;

e. Article 2.1 of the TRIMs Agreement, in conjunction with Article 2.2 and with paragraph 1(a) of the Agreement's Illustrative List, inasmuch as the programme is a trade-related investment measure inconsistent with Article III:4 of the GATT 1994 because it requires the purchase or use of strategic inputs and tools of Brazilian origin or from Brazilian sources in order to benefit from tax advantages; and

f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the programme provides tax advantages that are subsidies within the meaning of Article 1.1 of the SCM Agreement, which are contingent upon the use of strategic inputs and tools from Brazil over similar goods imported from other WTO Members, including the European Union.

ii. The set of advantages contingent upon domestic production and technological development of information and communication technology, automation and related goods (ICT products), as embodied and developed in the Informatics, PADIS, PATVD and Digital Inclusion programmes and also as applied by the relevant Brazilian authorities, is inconsistent with Brazil's obligations under:

a. Article III:2 of the GATT 1994, inasmuch as they impose a tax burden on imported ICT, automation and related products in excess of that applied to like domestic products, as a result of the operation of tax exemptions or reductions;

b. Article II:1(b) of the GATT 1994, should Brazil argue (or the Panel find) that the PIS/PASEP-Importation and COFINS- Importation are not internal taxes, inasmuch as they would amount to "other duties and charges" imposed on imported ICT products in excess of the duties and charges set forth in Brazil's Schedule of Tariff Concessions;

c. Article III:4 of the GATT 1994, inasmuch as:

i. the conditions for accreditation necessary for ICT, automation and related goods to benefit from the exemptions or reductions result in less favourable treatment granted to imported products than that accorded to like domestic products; and

ii. these measures afford less favourable treatment to imported inputs and equipment than that accorded to like domestic products by imposing, under the terms of the corresponding PPBs, an obligation to use local inputs and equipment in the production of ICT, automation and related products, as a condition to benefit from the exemptions or reductions;

d. Article III:5 of the GATT 1994, inasmuch as:

i. the conditions imposed under the terms of the corresponding PPBs regarding the minimum number of processing activities that producers of ICT, automation and related products need to perform in Brazil in order to benefit from the exemptions or reductions, amount to an internal quantitative regulation relating to the processing of products, which requires a specified proportion of the final product to be sourced locally; and

ii. the conditions relating to the minimum number of processing activities in Brazil amount to an internal quantitative regulation that is applied so as to afford protection to domestic production;

e. Article 2.1 of the TRIMs Agreement, in conjunction with Article 2.2 and with paragraph 1(a) of the Agreement's Illustrative List, inasmuch as the measures constitute trade-related investment measures inconsistent with Article III:4 of the GATT 1994 by requiring, under the terms of the PPBs, the purchase or use of inputs and manufacturing equipment of Brazilian origin or from Brazilian sources in order to benefit from the exemptions or reductions; and

f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the exemptions or reductions granted in relation to ICT, automation and related products that comply with the terms of the PPBs are subsidies within the meaning of Article 1.1 of the SCM Agreement, that are contingent upon the use of domestic over imported inputs and equipment.

iii. The RECAP programme, as embodied and developed in the above-mentioned instruments and also as applied by the relevant Brazilian authorities, is inconsistent with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement inasmuch as it provides for subsidies contingent upon export performance; and

iv. The scheme consisting of export contingent subsidies for the purchase of raw materials, intermediate goods and packaging materials, as embodied and developed in the above-mentioned instruments and also as applied by the relevant Brazilian authorities, is inconsistent with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement inasmuch as it provides for subsidies contingent upon export performance.

3.2.
Japan requests the Panel to find that:406

i. The tax advantage scheme under the INOVAR-AUTO programme and related measures, and each of the legal instruments through which they are established and administered – both individually and collectively, by and in themselves, or in conjunction with the increased IPI tax rate for motor vehicles – are inconsistent as such and as applied with Brazil's obligations under:

a. Article I:1 of the GATT 1994, inasmuch as the tax advantages available to motor vehicles imported from Mercosur countries and Mexico are not available to motor vehicles imported from other Members, including Japan;

b. Article III:2 of the GATT 1994, inasmuch as:

i. Imported motor vehicles are subject, directly or indirectly, to an IPI tax burden in excess of that applied, directly or indirectly, to like domestic products; and

ii. Imported motor vehicles and directly competitive or substitutable products that are domestically produced are taxed in a manner that affords protection to domestic production;

c. Article III:4 of the GATT 1994, inasmuch as motor vehicles, automotive components, and tools imported into Brazil are accorded less favourable treatment than that accorded to like products of Brazilian origin, as a result of the conditions for accreditation and for earning and using IPI tax credits;

d. Article III:5 of the GATT 1994, inasmuch as:

i. The criteria and/or requirements to benefit from tax advantages under INOVAR-AUTO, including (inter alia) the requirement to perform certain manufacturing steps in Brazil, and the reduction in the IPI tax credits based on the level of local content in automotive components and tools, amount to internal quantitative regulations relating to the mixture, processing or use of products, which require that specified amounts or proportions of products be supplied from domestic sources; and

ii. The said criteria and/or requirements also amount to internal quantitative regulations that are applied so as to afford protection to domestic production;

e. Article 2.1 of the TRIMs Agreement, separately and in conjunction with Article 2.2 and with paragraph 1(a) of the Agreement's Illustrative List, inasmuch as:

i. INOVAR-AUTO and related legal instruments are TRIMs that are inconsistent with Article III of the GATT 1994; and

ii. They require the purchase or use of products (including automotive components and/or tools) from domestic sources in order to obtain tax advantages; and

f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the programme and related legal instruments are and/or confer subsidies within the meaning of Article 1.1 of the SCM Agreement that are contingent upon the use of domestic over imported automotive components and/or tools.

ii. The Informatics, Digital Inclusion, PADIS, and PATVD programmes, and each of the legal instruments through which they are established and administered – both individually and collectively – are inconsistent as such and as appliedwith Brazil's obligations under:

a. Article III:2 of the GATT 1994, inasmuch as:

i. Imported ICT, automation and related products are subject, directly or indirectly, to internal tax burdens in excess of those applied, directly or indirectly, to like domestic products; and

ii. Imported ICT, automation and related products and directly competitive or substitutable products that are domestically produced are taxed in a manner that affords protection to domestic production;

b. Article II:1(b) of the GATT 1994, only in the event that the Panel finds that the PIS/PASEP-Importation and COFINS-Importation are not internal taxes falling under Article III:2 of the GATT 1994, inasmuch as "other duties or charges" are imposed on ICT, automation and related goods imported from Japan, in excess of the duties and charges set forth in Brazil's Schedule of Tariff Concessions;

c. Article III:4 of the GATT 1994, inasmuch as:

i. The conditions for accreditation result in less favourable treatment for imported products than that accorded to like domestic products; and

ii. The requirement to use local inputs and equipment in the production of ICT, automation and related products results in less favourable treatment for imported inputs and equipment than that accorded to like domestic products;

d. Article III:5 of the GATT 1994, inasmuch as

i. The criteria and/or requirements to benefit from tax advantages under the respective programmes, including (inter alia) the requirement to perform certain manufacturing steps in Brazil, and the minimum levels of local content or national value added (including those imposed under the terms of the corresponding PPBs), amount to internal quantitative regulations relating to the mixture, processing or use of products in specified amounts or proportions, which require that a specified amount or proportion of the final product be supplied from domestic sources; and

ii. The said criteria and/or requirements also amount to internal quantitative regulations that are applied so as to afford protection to domestic production;

e. Article 2.1 of the TRIMs Agreement, separately and in conjunction with Article 2.2 and paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement, inasmuch as:

i. The programme and related legal instruments are TRIMs that are inconsistent with Article III of the GATT 1994; and

ii. They require the purchase or use of products (i.e., Brazilian inputs and manufacturing equipment) from domestic sources in order to obtain tax advantages; and

f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the programmes and related legal instruments are and/or confer subsidies within the meaning of Article 1.1 of the SCM Agreement that are contingent upon the use of domestic over imported inputs and equipment.

iii. The RECAP programme and each of the legal instruments through which it is established and administered – both individually and collectively – are inconsistent as such and as applied with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement inasmuch as they are and/or confer subsidies within the meaning of Article 1.1 of the SCM Agreement that are contingent upon export performance; and

iv. The PEC programme and each of the legal instruments through which they are established and administered – both individually and collectively – are inconsistent as such and as applied with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement inasmuch as they are and/or confer subsidies within the meaning of Article 1.1 of the SCM Agreement that are contingent upon export performance.

3.3.
Brazil requests the Panel to reject the European Union and Japan's claims in this dispute in their entirety.407

4 ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties are reflected in their executive summaries, provided to the Panel in accordance with paragraph 21 of the Joint Working Procedures adopted by the Panel (see Annexes B-1 and B-2).

5 ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of Argentina, Australia, Canada, Ukraine and the United States are reflected in their executive summaries, provided in accordance with paragraph 22 of the Joint Working Procedures adopted by the Panel (see Annexes C-1, C-2, C-5, C-6 and C-7). The Republic of Korea requested that its oral statement be taken as its executive summary (see Annex C-4). Japan also submitted an executive summary of its arguments, as a third party in DS472 (see Annex C-3). The other third parties, China, Colombia, India, Russian Federation, Singapore, South Africa, Chinese Taipei and Turkey did not submit written or oral arguments to the Panel.

6 INTERIM REVIEW

6.1 GENERAL ISSUES AND EDITORIAL MATTERS

6.1.
Except where otherwise specifically indicated, the references to paragraph numbers in this section (and throughout this report) refer to the paragraph, section, and footnote numbers in this Final Report, and not the numbering in the Interim Reports.
6.2.
In addition to the requests by the parties, discussed below, corrections were made for typographical, stylistic and other non-substantive aspects of the Report, including those identified by the parties.
6.3.
All parties requested that the Panel clarify and, in some cases, revise its reasoning and findings in a number of paragraphs. In addition, all parties requested the Panel to revise its depiction of the parties' arguments in a number of paragraphs. In response to these requests, and on its own review of the Report, the Panel adjusted the following aspects of the Report: the Table of Exhibits; paragraphs 2.13, 2.15, 2.18, 2.20, 2.22, 2.71, 2.72, 2.75, 2.83, 2.86, 2.87, 2.91, 2.99, 7.3, 7.24, 7.25, 7.26, 7.31, 7.33, 7.38, 7.67, 7.69, 7.73, 7.80, 7.86, 7.87, 7.88, 7,116, 7,120, 7,134, 7,150, 7,154, 7,161, 7,163, 7,171, 7,173, 7,229, 7,251, 7,272, 7,279, 7,305, 7,309, 7,310, 7,352, 7,356, 7,359, 7,369, 7,370, 7,371, 7,403, 7,404, 7,405, 7,406, 7,432, 7,433, 7,434, 7,436, 7,438, 7,440, 7,441, 7,444, 7,449, 7,450, 7,451, 7,454, 7,456, 7,458, 7,459, 7,460, 7,463, 7,466, 7,468, 7,469, 7,470, 7,473, 7,476, 7,477, 7,478, 7,479, 7,480, 7,518, 7,522, 7,581, 7,582, 7,689, 7,690, 7,696, 7,724, 7,733, 7,746, 7,766, 7,771, 7,796, 7,816, 7,825, 7,888, 7,893, 7,927, 7,929, 7,995, 7.1118, 7.1145, 7.1165, 7.1167, 7.1168, 7.1169, 7.1170, 7.1171, 7.1174, 7.1175, 7.1176, 7.1179, 7.1181, 7.1183, 7.1186, 7.1187, 7.1189, 7.1190, 7.1191, 7.1194, 7.1197, 7.1199, 7.1202, 7.1203, 7.1204, 7.1207, 7.1210, 7.1232, 7.1235, 9.12, 9.16, 9.20, 9.26, 9.30, 9.37, 9.38, 9.49, 9.55, 9.63, 9.87, 9.88, 9.92, 9.97, 9.98, 9,104, 9,107, 9,112, 9,115, 9,116, 9,117, 9,118, 9,121, 9,122, 9,124, 9,134, 9,138, 9,139, 9,142, 9,143, 9,151, 9,152, 9,160, 9,164, 9,168, 9,169, 9,173, 9,174, 9,179, 9,185, 9,186, 9,187, 9,191, 9,197, 9,207, 9,209, 9,210, 9,215, 9,216, 9,217, 9,218, 9,222, 9,225, 9,229, 9,234, 9,235, 9,236, 9,237, 9,242, 9,243, 9,244, 9,249, 9,256, 9,257, 9,260, 9,268, 9,276, 9,285, 9,288, 9,292, 9,296, 9,301, 9,306; the headings of sections 7.2.2, 7.3.5.3.3.2(a), 7.3.5.3.3.2(b), 7.3.5.3.3.2(d), 7.3.5.3.3.2(e), 7.3.5.3.3.2(f), 7.3.5.3.3.2(g), 7.3.5.3.3.2(h), 7.3.5.3.3.2(i), 7.3.5.3.3.2(j), 7.4.5.3.3, and 7.5.1.2.3; and footnotes 237, 388, 471, 476, 484, 485, 512, 531, 532, 533, 535, 587, 680, 691, 789, 801, 814, 827, 845, 856, 1035, 1135, 1295, 1528, 1537, 1552, 1571, and 1605. The Panel inserted paragraphs 2.29, 7,446, 7,465, 7,475, 7,926, 7.1184, 7.1185, 7.1196, 7.1209, 9,223, 9,224, 9,318 and 9,319; and footnotes 11, 42, 43, 44, 442, 443, 444, 469, 505, 506, 578, 579, 586, 672, 791, 795, 796, 803, 807, 809, 816, 821, 829, 835, 839, 847, 853, 857, 1084, 1128, 1129, 1273, 1400, 1487, 1529, 1530, 1539, 1544, 1547, 1554, 1560, 1563, 1573, 1579, 1582, 1583, 1655, 1703, and 1744. The Panel also deleted paragraphs 2.60 and 7.1192 of the Interim Reports, and footnotes 161, 162, 1478, 1493, 1509, 1545, and 1546 of the Interim Reports.
6.4.
The Panel made structural changes to section 8 in order to distinguish between its findings and recommendations in respect of DS472 (complaint by the European Union) and DS497 (complaint by Japan).

6.2 PROVISIONS PERTAINING TO DEVELOPING COUNTRIES

6.5.
The Panel inserted section 7.6 that refers to Articles 12.10 and 12.11 of the DSU. These provisions pertain to developing countries. The Panel explains in section 7.6 how it took these provisions into account in respect of Brazil's participation in this dispute.

6.3 THE SCOPE OF THE PARTIES' REQUESTS FOR REVIEW OF THE INTERIM REPORTS

6.6.
The European Union requests additional findings on a number of issues. These requests are challenged by Brazil.408
6.7.
The Panel notes the findings of the previous panels that a request from a party to reverse a decision goes beyond the scope of Article 15.2 of the DSU409, that the purpose of interim review is "not necessarily" for a party to re-argue previously made arguments410, and that the purpose of interim review is "not to allow a party to raise new arguments or develop arguments which were at most merely alluded to during the course of the proceeding".411 However, the Panel also notes that in the latter dispute, the panel did decide to "address certain of the points made by [the requesting Member] in its request for review".412 The Panel also notes the approach adopted by the panel in Russia – Pigs, where the panel reviewed the "Interim Report only in light of the comments made by the parties which relate to 'precise aspects' of the Interim Report."413 That panel also rejected requests from the parties that amounted "to a party re-litigating arguments" previously made to the Panel.414
6.8.
The Panel, therefore, declines to address those requests from any party for new findings, or that amount to re-litigation of previous arguments. In addition, the panel will only review the Interim Report in light of the comments made the parties which pertain to precise aspects of the Interim Report.

6.4 THE "IN-HOUSE" ARGUMENT

6.9.
With respect to paragraphs 7,314 and 7,747, the European Union argues that the Panel's completion of its legal analysis in respect of the "in-house scenario" is "essential to secure a positive solution" to the dispute.415 In the European Union's view, "in order to comply with the Panel's report, Brazil may consider it sufficient to leave the required production steps intact and ask accredited companies to internalise those steps."416 In the European Union's view, the "complainants would be compelled to start a new panel procedure and repeat their legal claims, even though those legal claims are properly before [the] Panel."417 The European Union therefore requests the Panel to complete its legal analysis in respect of the "in-house" scenario. In the alternative, the European Union requests the Panel to "include in the Report the elements that would allow the Appellate Body to complete the legal analysis".418
6.10.
The Panel understands the argument raised by the European Union above. However, the Panel recalls that "a panel has the discretion 'to address only those arguments it deems necessary to resolve a particular claim' and 'the fact that a particular argument relating to that claim is not specifically addressed in the 'Findings' section of a panel report will not, in and of itself, lead to the conclusion that that panel has failed to make the 'objective assessment of the matter before it' required by Article 11 of the DSU'".419
6.11.
In this respect, the Panel has found that the relevant aspects of the programmes concerning production-step requirements, as challenged by the complaining parties in this dispute, are WTO-inconsistent for the reasons elaborated upon in sections 7.3.2.2.4 and 7.4.2.4.2 (in respect of Article III:4 of the GATT 1994) as well as sections 7.3.4 and 7.4.5 (in respect of Article 2.1 of the TRIMs Agreement) and sections 7.3.5 and 7.4.5 (in respect of Article 3.1(b) of the SCM Agreement). In light of these findings, the Panel does not consider it necessary in these proceedings to address the complainants' argument that the relevant production-steps are inconsistent with the exact same provisions, for reasons other than those identified by the Panel.
6.12.
With respect to the European Union's request in the alternative, for the Panel to make additional factual findings for the Appellate Body to complete the analysis, the Panel considers that its factual findings are sufficient should the Appellate Body decide to rule on this issue. Indeed, the Panel considers that the European Union admits as much when it states that the "relevant facts under the outsourcing scenario and the in-house scenario are the same … the only difference being that the accredited company carries out those production steps in-house, instead of avail[]ing itself of the possibility to outsource them to another company in Brazil". Contrary to the European Union's suggestion, should the Appellate Body want to review the Panel's analysis, it will be able to benefit from the descriptive part of the Report, the exhibits contained in the Panel record (and identified in the descriptive part), and the Appendix attached to the Report.
6.13.
Regarding the European Union's speculations as to the manner in which Brazil could come into compliance with its obligations, the Panel considers it inappropriate at this stage to prejudge the manner in which Brazil may come into compliance with such obligations. In accordance with the relevant provisions of the DSU, and at the appropriate juncture, if the complaining parties consider that Brazil has not brought its measures into compliance, then the complaining parties may have recourse to dispute settlement proceedings pursuant to Article 21.5 of the DSU, if they so wish. Any issues pertaining to the manner of Brazil's compliance can be addressed at that stage.
6.14.
For these reasons, the Panel declines the European Union's request to make any additional findings in respect of this particular issue.

6.5 ARTICLE 4.7 OF THE SCM AGREEMENT

6.15.
In their requests for interim review, the European Union and Japan requested the Panel to add certain language to section 8, referring to Article 4.7 of the SCM Agreement. Article 4.7 of the SCM Agreement states that:

If the measure in question is found to be a prohibited subsidy, the panel shall recommend that the subsidizing Member withdraw the subsidy without delay. In this regard, the panel shall specify in its recommendation the time-period within which the measure must be withdrawn.

6.16.
On 6 December 2016 the Panel submitted an additional question to the parties at the interim review stage of the proceedings, regarding the appropriate time-period that, in the view of the parties, the panel should specify in its recommendation. On 9 December 2016 the Panel received the parties' responses to this question, and on 12 December 2016 the Panel received the parties' comments on each other's responses to the question.
6.17.
The Panel notes that previous panels addressing the specific time-period contemplated under Article 4.7 of the SCM Agreement have tended to specify 90 days as the time-period in which the subsidy must be withdrawn.420 In this dispute, such a time-period would be significantly shorter than the period of time ostensibly contemplated in Article 21.3(c) of the DSU.421 This is because, for example, a local content requirement in a subsidy would need to be remedied "without delay" (i.e. typically 90 days) when challenged as a prohibited subsidy under the SCM Agreement, whereas the same local content requirement in the same instruments when challenged under the GATT 1994 would need to be remedied within a "reasonable period of time" (ostensibly up to 15 months, subject to the arbitrator's discretion). It is difficult for the Panel to reconcile these provisions. However, the Panel notes the Appellate Body's statements in Canada – Renewable Energy / Canada – Feed-in Tariff Program to the extent that the expedited remedy provided under Article 4.7 of the SCM Agreement is an "important consideration422 In light of the Appellate Body's statements, the Panel is of the view that it must respect the specific remedy contemplated in Article 4 of the SCM Agreement. In light of these considerations, the Panel added paragraphs 8.10, 8.11, 8.21 and 8.22 to its conclusions.

6.6 CONFIDENTIALITY OF THE INTERIM REPORTS

6.18.
Pursuant to the DSU, all panel proceedings remain confidential until the Panel Report is circulated to WTO Members. Paragraph 25 of the Panel's Joint Working Procedures states that "The interim report, as well as the final report prior to its official circulation, shall be kept strictly confidential and shall not be disclosed." The confidential nature of the Interim Reports was explicitly reiterated when they were transmitted to the parties on 11 November 2016. On 12 November 2016, the Panel was made aware of press reports about the contents of the confidential Interim Reports. In light of this, the Panel wishes to emphasize its disappointment and concern that the confidentiality of the Interim Reports was not respected.

7 FINDINGS

7.1 OVERVIEW OF THE MEASURES AND CLAIMS, AND THE PANEL'S ORDER OF ANALYSIS

7.1.
The complaining parties challenge the WTO-consistency of specific aspects of seven distinct "programmes" comprised of multiple laws, decrees, implementing orders (Portarias) and other legal instruments. Four of these programmes, namely the Informatics, PADIS, PATVD and Digital Inclusion programmes, bear substantial similarities to one another, not only in that all four programmes are related to the information communication technology (ICT) sector, but also in the design and the way they operate. A fifth programme, the INOVAR-AUTO programme, pertains to the automotive sector. Although the complaining parties invoke the same provisions of the covered agreements in respect of the INOVAR-AUTO programme as they do in respect of the ICT programmes, the INOVAR-AUTO programme differs from the ICT programmes not only in terms of its sectoral coverage (the automotive industry), but also in terms of its design and operation. Finally, the complaining parties raise export subsidies claims against two additional programmes – the PEC and RECAP programmes. Since these programmes are only challenged under a single provision, namely Article 3.1(a) of the SCM Agreement, the Panel addresses these claims separately and after the prior mentioned claims.
7.2.
Specifically with respect to the four ICT programmes (the Informatics, PADIS, PATVD and Digital Inclusion programmes) as well as the INOVAR-AUTO programme, the complaining parties claim that these programmes:

a. Introduce tax and regulatory discrimination in favour of domestic finished and intermediate products, and against imported finished423and intermediatelike products,inconsistently with Article III:2 and III:4 of the GATT 1994;

b. Introduce regulatory discrimination against imported inputs, in the form of incentives to use domestic products over imported like products (so-called local content requirements), inconsistently with Article III:4 and III:5 of the GATT 1994;

c. Constitute trade-related investment measures (TRIMs) that are inconsistent with Article III of the GATT 1994, including conditions that require the purchase or use of products from any domestic source, and therefore consequently inconsistent with Article 2.1 of the TRIMs Agreement; and

d. Constitute prohibited subsidies contingent upon the use of domestic over imported goods, inconsistently with Article 3.1(b) of the SCM Agreement.

7.3.
These claims, under the various provisions of Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement, deal (at least in part) with product discrimination in respect of imported products vis-à-vis domestic like products. Thus, the subject matter of these claims overlap to some extent.
7.4.
The Panel proceeds by first describing the measures at issue, in the context of which the Panel also addresses a challenge by Brazil to the Panel's terms of reference in dispute DS472. Thereafter, the Panel discusses in general terms the overlaps and differences between the various provisions prohibiting discrimination between imported and domestic like products in Article III of the GATT 1994, as well as the scope of the overlaps and differences between the provisions of Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement and Article 3.1(b) of the SCM Agreement. Finally, for the purposes of this overview, the Panel describes its order of analysing the complaining parties' various claims.

7.1.1 The measures at issue

7.5.
As an initial matter, the Panel considers it useful to describe the precise measures at issue in this dispute, because Brazil claims that one of the instruments of such programme is not included in the Panel's terms of reference. The Panel also considers it useful to make some clarifying remarks on the categories of products discussed in this report.
7.6.
In defining the measures as challenged by the complaining parties, the Panel notes the statement by the European Union that "[t]he measures at issue in this dispute are the set of advantages in relation to taxes, duties, contributions and charges embodied in and applied through a comprehensive set of interrelated programmes."424 The European Union further elaborated that, in respect of the INOVAR-AUTO programme, the European Union challenges the "system of advantages conferred by Brazil to its automotive sector through the … programme".425 With respect to the ICT programmes (the Informatics, PADIS, PATVD, and Digital Inclusion programmes), the European Union "raises claims against the fiscal schemes … specifically as contained in [the] four programmes".426 Finally, in respect of the PEC and RECAP programmes, the European Union challenges the "fiscal schemes which are contingent upon export performance and that affect multiple economic sectors in Brazil".427 Japan, for its part, notes that the challenged measures "include the seven programmes", and that "[i]n particular, Japan challenges the discriminatory aspects of these tax incentive programmes".428
7.7.
The Panel considers that the measures at issue are the sets of allegedly discriminatory advantages embodied in each of the identified programmes. The Panel recalls its description of the functioning of the challenged programs in section 2 above.
7.8.
The Panel proceeds by assessing Brazil's argument with respect to the Panel's terms of reference in dispute DS472. Thereafter, the Panel will elaborate on the terms used by the Panel and the parties to describe the categories of products at issue in this dispute.

7.1.1.1 The Panel's terms of reference

7.9.
Brazil alleges that Implementing Order 257/2014 is not within the Panel's terms of reference in dispute DS472 because it was not explicitly identified in the European Union's panel request, as required by Article 6.2 of the DSU.429
7.10.
The Appellate Body in US – Countervailing and Anti-Dumping Measures (China) explained that Article 6.2 of the DSU serves a crucial function in WTO dispute settlement as it "establish[es] and delimit[s] a panel's jurisdiction"430 and "fulfils a due process objective".431 In particular, insofar as a panel request fails to identify "the specific measures at issue", the panel established thereunder does not have jurisdiction to make any findings in respect of those measures.432
7.11.
In China – Raw Materials the Appellate Body stated that "whether a panel request identifies the 'specific measures at issue' may depend on the particular context in which those measures operate and may require examining the extent to which they are capable of being precisely identified."433 The Appellate Body in US – Continued Zeroing also indicated that "the identification of a measure within the meaning of Article 6.2 need be framed only with sufficient particularity so as to indicate the nature of the measure and the gist of what is at issue."434