WTO Rules Boeing Received Illegal Tax Break

Los Angeles, United States - March 9, 2015: Boeing manufactuing facility. Boeing manufactures and sells aircraft, rotorcraft, rockets and satellites. It is the second-largest defense contractor in the world.

The body deems that this incentive gives Boeing an unfair advantage against overseas aircraft manufacturers, but the company says that it intends to appeal.

The World Trade Organization (WTO) has determined that aircraft manufacturer Boeing has received an illegal tax break from the state of Washington. It has been reported that the monies were received as part of an $8.7 billion aid package that was used as an incentive to assemble the both the 777X aircraft as well as its wing within the state.

This ruling is the latest development in what has become an ongoing point of contention between the European Union (EU) and the U.S. over government subsidies toward the cost of building new craft.

On Monday, Bloomberg reported that a WTO panel ruled that, “An incentive cutting a state levy on gross receipts by 40 percent is a prohibited subsidy that must be removed.” The WTO said that the tax break, which will come into effect when the first 777X rolls off the assembly line in 2020, gives the U.S. manufacturer an unfair advantage over overseas manufacturers.

The European Commission, the executive body of the EU, also said that Boeing would stand to gain $5.7 from the tax break. The manufacturer protested that it would be gaining only $1 billion in funds.

Commenting on the findings in a statement, EU Trade Commissioner Cecilia Malmström said, “Today’s WTO ruling is an important victory for the EU and its aircraft industry. The panel has found that the additional massive subsidies of USD 5.7 billion provided by Washington State to Boeing are strictly illegal.”

She added, “We expect the U.S. to respect the rules, uphold fair competition, and withdraw these subsidies without any delay.”

It is expected that the U.S. will counter the decision. In a statement, J. Michael Luttig, Boeing’s general counsel, said that “After any appeal, we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate.”

[Photo: Wolterk/iStock]