PHILIPPINES – TAXES ON DISTILLED SPIRITS
Document: Request for the Establishment of a Panel by the European Union
Date: 11 December 2009
Document codes: WT/DS396/4
Complainant: EU
Respondent: Philippines
Third parties: Australia, China, India, Mexico, Thailand, Taiwan, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. III:2  GATT 1994

PHILIPPINES – TAXES ON DISTILLED SPIRITS

Request for the Establishment of a Panel by the European Union

 The following communication, dated 10 Decembe r 2009, from the delegation of the European
Union to the Chairman of the Dispute Settlement Bo dy, is circulated pursuant to Article 6.2 of the
DSU.

 The European Union (the "EU") hereby requ ests the establishment of a panel pursuant to
Articles 4.7 and 6 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes ("DSU") and Article XXIII of the General Agreement on Tariffs and Trade ("GATT 1994").

 This request concerns the excise tax regime in force in the Philippines with respect to distilled
spirits and more particularly the measures evidenced inter alia by the following legal provisions, as
such and as applied, in law and in fact, insofar as they relate to distilled spirits:

– Section 141 of the National Internal Revenue Code of 1997 (Republic Act No. 8424,
an Act amending the National Internal R evenue Code as amen ded and for other
purposes, Official Gazette 1 June 1998, as subsequently amended, particularly by
Section 1 of Republic Act No. 9334, an Act increasing the excise tax rates imposed
on alcohol and tobacco products, amending for the purpose Sections 131, 141, 142,
143, 144, 145 and 288 of the National Inter nal Revenue Code of 1997, as amended );
and, to the extent relevant with respect to the implementing measures set out below,
Section 1 of the preceding and related Republic Act No. 8240, an Act amending
Sections 138, 139, 140 and 142 of the National Internal Revenue Code, as amended
and for other purposes (Republic Act No. 8240);

– Sections 3.I, 4 and 5 of the preceding and related Revenue Regulations No. 02-97
Governing Excise Taxation on Distilled Spirits, Wines and Fermented Liquors ,
implementing the relevant provisions of Republic Act No. 8240;

– Section 1 of Revenue Regulations No. 17-99, Implementing Sections 141, 142, 143
and 145(A) and (C) (1),( 2), (3) and (4) of the National Internal Revenue Code of
1997 relative to the Increase or the Excise Tax on Distilled Spirits, Wines, Fermented
Liquors and Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on
1 January 2000;

– Section 3 of Revenue Regulations No. 9-2003 Am ending Certain Provisions of
Revenue Regulations No. 1-978 and Revenue Regulations No. 2-97 Relative to the
Excise Taxation of Alcohol Products, Ciga rs and Cigarettes for the Purpose of
Prescribing the Rules and Procedures To Be Observed in the Es tablishment of the

Current Net Retail Price of New Brands and Variants of New Brands of Alcohol and
Tobacco Products;

– Section 2 of Revenue Regulations No. 23-2003 Implementing the Revised Tax
Classification of New Brands of Alcohol Products and Variants Thereof Based on the
Current Net Retail Prices Thereof as Dete rmined in the Survey Conducted Pursuant
to Revenue Regulations No. 9-2003;

– Sections A, B and C(2)(a) of Revenue Regulations No. 12-2004 Providing for the
Revised Tax Rates on Alcohol and Tobacco Products introduced on or before
31 December 1996, and for those Alcohol and Tobacco Products Covered by
Revenue Regulations No. 22-2003 and 23-2003, Implementing Act No. 9334; and

– Sections 1 to 9 of Revenue Regulations No. 3-2006 Prescribing the Implementing
Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to
the Provisions of Republic Act No. 9334, and Clarifying Certain Provisions of
Existing Revenue Regulations Relative Thereto.

 For each of the measures referred to above, this request also covers any amendments,
replacements, extensions, implementing measures or other related measures.

 Section 141 of the National Internal Revenue Code of 1997 as amended and implemented,
provides in part as follows
1:

"Distilled Spirits. – On distilled spirits, there shall be collected (…) excise taxes as
follows:
(a) If produced from the sap of nipa, coconut, cassava, camote, or buri palm or from
the juice, syrup or sugar of the cane, provided such materials are produced
commercially in the country where they are processed into distilled spirits, per proof
liter, Eleven pesos and sixty-five centavos (P11.65).
(b) If produced from raw materials other th an those enumerated in the preceding
paragraph, the tax shall be in accordance w ith the net retail price per bottle of seven
hundred and fifty milliliter (750 ml.) volume capacity (excluding the excise tax and
the value-added tax) as follows:
(1) Less than Two hundred and fifty peso s (P250) – One hundred twenty-six pesos
(P126), per proof liter;
(2) Two hundred and fifty pesos (P250) up to Six hundred and Seventy-five pesos
(P675) – Two hundred and fifty-two pesos (P252), per proof liter; and
(3) More than Six hundred and seventy-five pesos (P675) – Five hundred and four
pesos (P504), per proof liter."
 The Revenue Regulations referred to above, when setting out the excise tax rate applicable to
each brand of spirits introduced into the Philippi nes market, distinguish between "local distilled
spirits" (see, for example, Section A of Revenue Regulations No. 12-2004, referring to "Local
Distilled spirits Brands Produced from Sap of Nipa , Coconut, etc. covered by Section 141 … ") and
"imported distilled spirits" (see, for example S ection B of Revenue Regulations No. 12-2004,

1 National Internal Revenue Code of 1997 as amended and consolidated up to 1 March 2009.

referring to "Imported Distilled Sp irits Brands Produced from Grains, Cereals, and Grains covered by
Section 141 …"). The EU claims relate to the diffe rent excise tax rates applicable by the Philippines
to local and imported whisky, gin, brandy, rum or rhum, vodka and other distilled spirits.

 Under Section 141 of the National Internal Revenue Code of 1997 , and the other measures
referred to above, the Philippines establishes and a pplies a discriminatory excise tax regime that
adversely affects imports of distilled spirits (code 22.08) of the Harmonised System to the Philippines.
In essence, under this regime, distilled spirits produced from the sap of nipa, coconut, cassava, camote
or buri palm, or from the juice, syrup or sugar of the cane, provided that such materials are produced
commercially in the country where they are processed into distilled spirits, are subject to a flat tax rate
(of 11.65 Pesos in 2009). These raw materials are i ndigenous to the Philippines. At the same time,
imported spirits produced from other raw materials are subject to a system of price bands at
substantially higher tax rates (between 126 Pesos and 504 Pesos in 2009).

 These measures, individually and in any combina tion, as such and as applied, in law and in
fact, are inconsistent with the Philippines' obligations under the GATT 1994 and are therefore
presumed to (and do) nullify or impair the benefits ot herwise accruing, directly or indirectly, to other
WTO Members, including the EU. In particular, the Philippines has acted inconsistently with the first
sentence of Article III:2 of the GATT 1994, by making distilled spirits imported from other WTO
Members, including the EU, subject, directly or indir ectly, to internal taxes or other internal charges
in excess of those applied, directly or indirectly , to like domestic products. Moreover, separately and
in combination with the first sentence of Article III :2, by applying internal taxes or other internal
charges to imported and/or domestic products in a manner contrary to the principles set forth in
paragraph 1 of Article III of the GATT 1994, the Ph ilippines has acted inconsistently with the second
sentence of Article III:2 of the GATT 1994.

 On 29 July 2009, the EU requested consultations with the Philippines with a view to reaching
a mutually satisfactory solution to the matter. Th e request was circulated in document WT/DS396/1
dated 30 July 2009. The consultations were he ld in Manila on 8 October 2009 on the above-
mentioned measures. They have not led to a satisfactory resolution of the matter.

 Therefore, the EU respectfully requests that a panel be established, with standard terms of
reference under Article 7 paragraph 1 of the DSU, to consider the above complaint with a view to
finding that the above measures adopted or maintain ed by the Philippines are inconsistent with the
first and second sentences of Article III:2 of the GA TT 1994, as such and as applied, in law and in
fact, and are therefore presumed to (and do) nullify or impair the benefits otherwise accruing, directly
or indirectly, to other WTO Members, including the EU.