Countries Wishing to Reform Their Tax System Must Be Sure That Their Proposals Follow Both International Trade Law Principles and International Tax Law Principles

Countries wishing to reform their tax system must consider that their proposals are in line with both international trade law and international tax law, which, if on the one side, are two different branches of international law, on the other side, they share overlapping elements in relation to taxation. As a result, countries have a limited policy space to modify their tax system, and, consequently, the best, though not easy to apply, policy option is to try to abide by the two systems already when enacting or revising tax legislation. Considering the expansion of World Trade Organization (WTO) law in relation to the area of taxation, the overlap between the two branches of international law will increase in the future. Part I of this paper analyses the linkage between WTO law and direct and indirect taxes. Part II evaluates the Foreign Sales Corporation (FSC) case, which is the dispute before the WTO’s Dispute Settlement Body (DSB) that sanctioned the possibility for WTO law to affect member countries’ direct taxes. And finally, Part III reflects on the limited policy space left to countries when reforming their tax system according to the framework provided by Part I and Part II