[00:00:01] Speaker 03:
First case for argument this morning is 171358 DWA holdings versus United States.

[00:00:08] Speaker 03:
Mr. Gar, whenever you're ready.

[00:00:13] Speaker 00:
Thank you, Chief Judge Prost, and may it please the court.

[00:00:16] Speaker 00:
Our position is simply that when Congress said it wanted to ease the impact on U.S.

[00:00:22] Speaker 00:
companies for transactions during 2005 or 2006, Congress meant just that.

[00:00:30] Speaker 00:
transactions during 2005 or 2006, Congress did not mean to limit that relief to income received during 2005 or 2006.

[00:00:40] Speaker 04:
If 101D is so clear, why did your client wait until it was audited to request a refund?

[00:00:50] Speaker 00:
Well, Your Honor, our client followed the initial informal guidance by the IRS, which initially interpreted this provision

[00:00:57] Speaker 00:
not to extend to income received in later years.

[00:01:01] Speaker 00:
We filed our returns and as soon as we carefully studied these provisions, we promptly filed a refund request.

[00:01:07] Speaker 00:
I mean, taxpayers make mistakes all the time.

[00:01:09] Speaker 00:
There's a period within which they can file refund requests.

[00:01:13] Speaker 00:
We did, and we've been strongly advocating this position since.

[00:01:18] Speaker 00:
And I think if you look to the text of the statute, I mean, the overall question here is, did Congress mean to

[00:01:25] Speaker 00:
to grant this provisional relief to transactions during 2005 or 2006, no matter when the income was received.

[00:01:32] Speaker 00:
Or did Congress mean only to limit this relief to income received in 2005 or 2006?

[00:01:38] Speaker 00:
And I think the statute answers that question by referring to transactions.

[00:01:43] Speaker 00:
Under the government's view, the reference to transactions is essentially superfluous.

[00:01:49] Speaker 00:
And I think that's why in the government's brief, it's notable that when it quotes the statute, it doesn't put transactions

[00:01:55] Speaker 00:
in the quote, and it basically asks this court to ignore that.

[00:01:59] Speaker 00:
And the other thing that's notable about Section 101D is what's not there.

[00:02:05] Speaker 00:
There's no reference to taxable year, which is an income recognition concept.

[00:02:10] Speaker 00:
You can see that from Section 441 of the code itself.

[00:02:14] Speaker 00:
You can compare the statute that Congress enacted with the Senate bill, which was focused on income recognition.

[00:02:22] Speaker 00:
which did take into account the difference between a fiscal year taxpayer and a calendar year taxpayer, which creates problems under the government's interpretation, had a special rule for fiscal taxpayers.

[00:02:34] Speaker 00:
And instead, Congress enacted this provision, which refers to transactions.

[00:02:40] Speaker 03:
There are no cases listed under the statement of related cases.

[00:02:44] Speaker 03:
It seems like this would have affected a lot of people.

[00:02:48] Speaker 03:
Now, there's a large time lag.

[00:02:50] Speaker 03:
Are you aware of this having been litigated elsewhere?

[00:02:53] Speaker 00:
No, I believe this is the first case where it's been litigated.

[00:02:57] Speaker 00:
I believe there's perhaps limited other litigation pending, but largely I think this is a very small category of cases or taxpayers that would be impacted by this.

[00:03:12] Speaker 00:
We're talking about, obviously, transactions that took place more than a decade ago.

[00:03:18] Speaker 00:
The way that this provision works, even under our interpretation, is that this is going to peter out.

[00:03:24] Speaker 00:
Even for DreamWorks, it's no longer receiving income on the 2006 agreement at issue here.

[00:03:29] Speaker 00:
This isn't a big tax benefit or impact in any sense.

[00:03:34] Speaker 00:
This is relatively limited, but it's important because it's granting U.S.

[00:03:38] Speaker 00:
companies the transactional relief that Congress granted them in helping them ease the way through a gradual

[00:03:45] Speaker 00:
runway into this new regime in which all of this was about competition.

[00:03:49] Speaker 04:
I think that the strongest argument on the other side is that we have the canon that comes out of Weinberg that says that if in fact we're interpreting a statute and there's an ambiguity, that we are to interpret it in such a way as to assume that Congress would have intended to comply with any international treaty obligations.

[00:04:12] Speaker 04:
So is it your position that that canon doesn't come into play because the statute's unambiguous?

[00:04:16] Speaker 04:
Or is it your position that even if it comes into play, it can't override the other arguments that you make?

[00:04:23] Speaker 00:
I mean, both of those.

[00:04:24] Speaker 00:
And let me make a few points on this, because I think you're right.

[00:04:28] Speaker 00:
That's basically what the government falls on.

[00:04:31] Speaker 00:
I mean, first, as you said, the canon doesn't come into play where the statute itself is clear.

[00:04:35] Speaker 00:
This court said that in the Timken case on page 1344.

[00:04:40] Speaker 00:
The canon doesn't come in play where both interpretations would violate the international agreements that the government is relying on.

[00:04:48] Speaker 00:
Even its interpretation, under its interpretation, 101D would have been contrary to what the European trading partners were talking about at that time.

[00:04:57] Speaker 00:
All of that underscores that we're dealing with a statute where Congress obviously knew it was in the thick of international relations, was considering how to balance things, protect US companies, bring us

[00:05:08] Speaker 00:
in line with international agreements and enacted these provisions.

[00:05:12] Speaker 00:
And I think that would give the court all the more reasons to carefully follow what Congress said.

[00:05:16] Speaker 04:
And then finally, we're- Are you saying there can't be a sort of a sliding scale?

[00:05:21] Speaker 04:
In other words, I think the government would say, well, yeah, we weren't completely complying with WTO's directive, but we ought to interpret it as the more compliance that we can have would be the better interpretation.

[00:05:36] Speaker 00:
We looked for cases.

[00:05:38] Speaker 00:
advocating that and couldn't find them.

[00:05:40] Speaker 00:
And I think the reason why it doesn't make sense is that their courts then are really sort of taking on the international relations role itself and saying, well, how do we want to balance international relations?

[00:05:50] Speaker 00:
It's maybe one thing where you can say that Congress didn't want to interfere with it at all.

[00:05:54] Speaker 00:
But once you're in the realm of Congress directly in there, passing a law that is impacting it, consider that you would follow the text.

[00:06:02] Speaker 00:
But the final point is an important one, which is the international backlash here was with respect to

[00:06:08] Speaker 00:
future transactions, because that's where the competition was.

[00:06:12] Speaker 00:
And that's why the focus was on the binding contract rule, because that had an ongoing going forward effect with respect to new transactions.

[00:06:22] Speaker 00:
Section 101D, just like Section 101C, didn't deal with new transactions.

[00:06:27] Speaker 00:
It dealt with the US tax impact of old transactions, 2004, 2005, and 2006.

[00:06:34] Speaker 00:
And that simply wasn't the concern of our European

[00:06:37] Speaker 00:
trading partners, and that's why they didn't challenge the government's interpretation of 101C, which is, although it's not directly the provision of issue in this case, I think is an important cornerstone to understanding why the government's position has to be wrong.

[00:06:50] Speaker 00:
101C is a provision that says the repeals don't take effect with respect to transactions after a particular day.

[00:06:58] Speaker 00:
And up until the government's brief in this case, the IRS had interpreted that provision to mean that for transactions before 2005,

[00:07:07] Speaker 00:
those transactions for income received in later years would get the full benefit of the ETI regime going forward.

[00:07:14] Speaker 00:
And again, that's not something that was challenged in the European dispute because it dealt with prior transactions.

[00:07:23] Speaker 00:
But if that's correct, and it has to be, I think, that transactions entered into after that date, then the government's interpretation of 101D makes even less sense.

[00:07:36] Speaker 00:
Because if you look at 101C and 101D together, you can see that these are not only next to each other, but they speak in the same transactional language.

[00:07:48] Speaker 00:
In 101C, you have transactions after December 31, 2004.

[00:07:52] Speaker 00:
What does that mean?

[00:07:54] Speaker 00:
Obviously, it means transactions entered into after December 31, 2004.

[00:07:57] Speaker 00:
And the government had interpreted the same exact language, which appeared in the ETI Act, to mean

[00:08:05] Speaker 00:
transactions entered into after the particular date.

[00:08:08] Speaker 00:
They did that in a revenue procedure, which is a significant document for the IRS.

[00:08:14] Speaker 00:
Revenue procedure 2001-37, section 2.02 of that, and section 6.02 of that.

[00:08:24] Speaker 00:
Also in the Chief Counsel memorandum, January 12, 2007, where they interpreted

[00:08:30] Speaker 00:
the prior transitional period under the ETI regime, which referred to transactions after a particular date, to mean transactions entered into after that date.

[00:08:38] Speaker 00:
And once you accept that premise, then 101D becomes even more crystal clear that Congress was referring to transactions entered into during 2005 and 2006.

[00:08:51] Speaker 00:
And for those transactions, once they were entered into that period,

[00:08:56] Speaker 00:
They would continue to enjoy the benefit of the transitional rule, not the full ETI regime like pre-2005 transactions, but the transitional rule and the percentages there.

[00:09:06] Speaker 04:
You say that there was more focus on 101F than there was on 101D by Congress then repealed that.

[00:09:16] Speaker 04:
And you concede that that was clearly reflective of an effort to comply with the WTO consensus.

[00:09:26] Speaker 04:
Yes.

[00:09:26] Speaker 04:
flip the argument around and say that, well, the reason they didn't bother with 101D is because they didn't think it was that offensive to the WTO concerns.

[00:09:39] Speaker 04:
Because they were reading it more narrowly like the government does.

[00:09:42] Speaker 00:
That's the argument.

[00:09:43] Speaker 00:
And the reason why the focus was on 101F, again, because it dealt with future transactions.

[00:09:50] Speaker 00:
If you had a binding and contract in place, then future transactions

[00:09:55] Speaker 00:
would still receive, under that contract, would still receive the benefit of the old ETI regime, which dealt with competition going forward.

[00:10:02] Speaker 00:
And that's what the European trading partners are most concerned about.

[00:10:04] Speaker 04:
Isn't there some tail of going forward, the way you interpret 101D?

[00:10:09] Speaker 00:
Income received from prior transactions.

[00:10:12] Speaker 00:
But again, think about it.

[00:10:13] Speaker 00:
What they were worried about is new transactions, because that's where the competition was.

[00:10:19] Speaker 00:
That's where the jobs were.

[00:10:20] Speaker 00:
They weren't concerned about the prior effects of old transactions.

[00:10:23] Speaker 00:
And again, that's why they didn't challenge

[00:10:25] Speaker 00:
the government's interpretation of 101C, which was an even greater impact when you think about it, because under 101C, any transaction entered into before January 1, 2005, continued to receive the full benefit of the prior ETI regime.

[00:10:41] Speaker 00:
And that's one of the oddities under the government's interpretation is that if you accept that interpretation of 101C, then companies were even in a worse position under the transitional rule than they were under

[00:10:54] Speaker 00:
101C, and that doesn't make any sense.

[00:10:56] Speaker 00:
I think another problem with the government's interpretation on 101C generally is that even to this day, the government has a form on its website, it's form 8873, for the reporting of ETI income.

[00:11:11] Speaker 00:
The government revised that form in September of 2017, and I think that that shows that the IRS practice had been to recognize that with respect to past transactions, in particular

[00:11:23] Speaker 00:
transactions before 2005, which had been governed by 101C, that for those transactions, income received in later years would still get the benefit of the pre-ETI regime.

[00:11:34] Speaker 00:
And again, once you accept that conclusion, which I think you have to based on the government's prior interpretations and past practice and the language itself, then it follows that Congress must have meant to adopt the same transactional rule for 101D, where it refers to

[00:11:52] Speaker 00:
in the case of transactions during 2005 or 2006.

[00:11:57] Speaker 00:
Everything works together under that interpretation.

[00:11:59] Speaker 00:
The court doesn't have to get into any of the sort of complicated somersaults that the government would have you do in reading things into the statute, reading things out of it, failing to take into account of Congress's absence of any special rule for fiscal taxpayers and the like in 2002.

[00:12:18] Speaker 00:
The government is asking this court to

[00:12:20] Speaker 00:
relanguage into the statute in terms of income received from transactions that Congress didn't say.

[00:12:25] Speaker 00:
It's asking it to disrupt the transaction-based regime that had always existed, going back to the pre-Fisk regime, the disk regime.

[00:12:35] Speaker 00:
They were all transaction-based.

[00:12:37] Speaker 00:
Congress simply carried forward that with respect to the ETI repeal and adopted a gradual runway for US businesses

[00:12:44] Speaker 00:
to adapt and compete in the new marketplace where they wouldn't have the benefits of the ETI regime.

[00:12:51] Speaker 03:
You're into your rebuttal.

[00:12:54] Speaker 03:
Oh, I'm sorry.

[00:12:54] Speaker 03:
Thank you very much.

[00:12:59] Speaker 02:
Jacob Christensen for the United States.

[00:13:01] Speaker 02:
May it please the court?

[00:13:04] Speaker 02:
The government completely agrees that the statute here, Section 101 of the American Jobs Creation Act,

[00:13:12] Speaker 02:
dealt, in particular paragraph D, dealt with transactions and that the transitional rule applied to transactions.

[00:13:22] Speaker 02:
There's never been a dispute about that in this case.

[00:13:26] Speaker 02:
What the parties dispute is the scope of the transitional relief that was actually provided.

[00:13:33] Speaker 02:
So in this case, the government agreed that DWA's 2006 Film Distribution Agreement

[00:13:42] Speaker 02:
That transaction was entitled to some transitional relief.

[00:13:46] Speaker 01:
Can I just double check?

[00:13:48] Speaker 01:
You have not disputed that as to that agreement, there's only the one transaction and that later events that like the distribution of a new film creating more licensing revenues do not constitute new transactions.

[00:14:06] Speaker 02:
That's correct.

[00:14:08] Speaker 02:
So as to that transaction, the IRS agreed and it allowed

[00:14:13] Speaker 02:
DWA to exclude a portion of its income received in 2006.

[00:14:19] Speaker 04:
But there's nothing in the statute, as Mr. Carr points out, that refers to income for a taxable year, right?

[00:14:26] Speaker 04:
No.

[00:14:26] Speaker 02:
Instead, the statute refers to calendar years 2005 and 2006.

[00:14:30] Speaker 04:
It says transactions in those calendar years, right?

[00:14:34] Speaker 04:
Which would be odd because the calendar years and tax years do not always coincide.

[00:14:41] Speaker 02:
That's correct, Your Honor.

[00:14:42] Speaker 02:
There are two things going on here.

[00:14:44] Speaker 02:
In the first clause of the statute, which is the clause on which the taxpayer relies, it states in the case of transactions during 2005 or 2006.

[00:14:53] Speaker 02:
So even if you interpret the phrase during 2005 or 2006 to modify transactions, all that clause accomplishes is to identify which transactions are covered by the transitional rule.

[00:15:09] Speaker 02:
Again, the government does not dispute that transactions occurring during 2005 or 2006 are covered by the transitional rule.

[00:15:17] Speaker 04:
So your position is that the statute is ambiguous?

[00:15:20] Speaker 02:
No, Your Honor.

[00:15:22] Speaker 02:
The following language after that first clause is what establishes the scope of the transitional relief actually conferred under the statute.

[00:15:31] Speaker 01:
But that clause is not time limited.

[00:15:34] Speaker 02:
Well, that clause incorporates

[00:15:37] Speaker 02:
paragraph D2.

[00:15:39] Speaker 02:
And paragraph D2 explicitly provides an applicable percentage which caps the amount of gross income under D1 that shall not exceed that applicable percentage.

[00:15:54] Speaker 02:
That applicable percentage applies specifically for 2005 and for 2006, meaning the 2005 and 2006 calendar years.

[00:16:06] Speaker 02:
So if you

[00:16:08] Speaker 04:
What do you put transactions entered into in those calendar years?

[00:16:13] Speaker 04:
It doesn't say anything about transactions entered into and completed in those calendar years.

[00:16:18] Speaker 02:
No, my point, Your Honor, is that the applicable percentage applies for a specific period of time, which is the calendar year 2005 and the calendar year 2006.

[00:16:32] Speaker 03:
Not if you read it back to

[00:16:33] Speaker 03:
applying to this phrase in D1 during transactions during 2005 and 2006.

[00:16:40] Speaker 03:
If you kind of read those two together, then that's different, right?

[00:16:45] Speaker 02:
That would be different, Your Honor.

[00:16:46] Speaker 02:
We do not think that the court should interpret paragraph D2 to involve any shorthand at all.

[00:16:54] Speaker 02:
It means what it says.

[00:16:55] Speaker 02:
When Congress said that the applicable percentage was for 2005,

[00:17:01] Speaker 02:
And for 2006, it meant that those percentages applied for those time periods.

[00:17:07] Speaker 02:
So if you plug that into the language in D1.

[00:17:10] Speaker 01:
But why in your view would D2 not be a freestanding provision which I gather, that is outside of D, which I gather your new position applies even to 2014 transactions?

[00:17:25] Speaker 02:
Excuse me.

[00:17:27] Speaker 01:
But what is your current position about 2014 transactions?

[00:17:33] Speaker 02:
They would not be entitled to ETI benefits.

[00:17:36] Speaker 01:
Congress' purpose in enacting... The amendments made by this section shall apply to transactions after December 31st, 2004.

[00:17:46] Speaker 01:
In other words, transactions... So pick a November 2004

[00:17:52] Speaker 01:
Did I say 2014?

[00:17:53] Speaker 01:
I meant 2004.

[00:17:53] Speaker 01:
I'm sorry.

[00:17:54] Speaker 01:
2004 transactions.

[00:17:59] Speaker 02:
Those transactions would be entitled to 100% of... Indefinitely.

[00:18:04] Speaker 02:
No.

[00:18:04] Speaker 02:
Why?

[00:18:05] Speaker 02:
Until December 31st of 2004.

[00:18:09] Speaker 01:
We read that effective date provision... Suppose there's income received in 2005 for the 2004 transaction.

[00:18:19] Speaker 01:
What's your view with the treatment of that income?

[00:18:21] Speaker 02:
then under paragraph C, the repeal would be effective for that income.

[00:18:27] Speaker 02:
But under paragraph D, there would be limited transitional relief.

[00:18:31] Speaker 01:
Why?

[00:18:33] Speaker 01:
Now I think we're on the same page and now I hope my question makes sense.

[00:18:39] Speaker 01:
Why in that event is D2 not a freestanding provision outside of D?

[00:18:45] Speaker 01:
Because you now want to use D2 to apply even to C transactions.

[00:18:53] Speaker 01:
Yes, in other words.

[00:18:55] Speaker 01:
I mean, it seems to me its placement in D tells us it's about the transactions covered by D and not anything else.

[00:19:05] Speaker 01:
And therefore it's probably talking about the year of the transaction, not income.

[00:19:14] Speaker 02:
Well, D would apply to any transaction that is occurring or generating income after the effective date of the repeal.

[00:19:23] Speaker 02:
for the 2005 and 2006 years.

[00:19:26] Speaker 04:
Right, and then G2 simply says that to the extent you're talking about 2005, it gets a different benefit than 2006.

[00:19:36] Speaker 04:
But you can't take D2 out of the D provision.

[00:19:42] Speaker 04:
It's all self-contained.

[00:19:44] Speaker 02:
I agree with that.

[00:19:45] Speaker 02:
And so if you plug in paragraph D2 into the governing statutory language,

[00:19:51] Speaker 02:
It would say that the amount included in gross income by reason of the amendments made by this section shall not exceed for 2005, 20%.

[00:20:03] Speaker 02:
And for 2006, 40% of the amount which would have been so included.

[00:20:10] Speaker 02:
But why wouldn't D2?

[00:20:13] Speaker 04:
D1 is titled general, and it lays out the general rule.

[00:20:17] Speaker 04:
And then D2 is entitled applicable percentage.

[00:20:21] Speaker 04:
Why wouldn't we reasonably read D2 as connected to the general principle laid out in D1?

[00:20:32] Speaker 02:
I think that is what Congress meant.

[00:20:36] Speaker 02:
So the applicable percentage merely provides the time periods for which gross income.

[00:20:42] Speaker 04:
You're trying to say that in D2, the reference to 2005 means

[00:20:49] Speaker 04:
that year only, as opposed to four transactions entered into it that year.

[00:20:53] Speaker 02:
Yes.

[00:20:54] Speaker 03:
And so gross income shall not exceed... But why is that a better reading than to apply D2 to the first phrase, which is talking about when it talks about... The only reference in D1 to 2005 and 2006 is in connection with transactions occurring those.

[00:21:11] Speaker 03:
You want to read the 2005, 2006 and D2 to be modifying the latter part of that sentence, right?

[00:21:19] Speaker 03:
Am I right about that?

[00:21:19] Speaker 03:
You want to say that applies to the amount of gross income for those years, right?

[00:21:26] Speaker 02:
It does, Your Honor, because the first clause of D1 establishes which transactions are covered by the transitional rule.

[00:21:37] Speaker 02:
But the scope of the transitional relief that's actually provided is defined in the subsequent statutory language.

[00:21:45] Speaker 01:
Just to be clear, your position is that D2

[00:21:49] Speaker 01:
actually applies to transactions that are outside D1 that are, in fact, under C. Right?

[00:22:00] Speaker 01:
That's your new view.

[00:22:01] Speaker 01:
If there is a multi-year long-term transaction that was enacted before the effect that they had on C. And the predecessor regime from which this language of transaction comes, I think you don't dispute.

[00:22:15] Speaker 01:
Tell me if you don't dispute.

[00:22:17] Speaker 01:
involve transactions that would produce income over multiple years, like the leases.

[00:22:25] Speaker 01:
Isn't that defined in 941 or 943 or one of those 940 provisions?

[00:22:30] Speaker 02:
That is another area of dispute.

[00:22:33] Speaker 02:
Again, the CCAs that are cited by opposing counsel.

[00:22:41] Speaker 02:
CCAs, I'm sorry.

[00:22:42] Speaker 02:
Sorry, the chief counsel advice on which chief counsel relies

[00:22:45] Speaker 02:
came to that conclusion with respect to the earlier ETI regime.

[00:22:50] Speaker 02:
But I want to be clear that those chief counsel advice do not set out or reflect the government's official position, and the IRS never adopted that position.

[00:23:01] Speaker 04:
And so the same thing with respect to paragraph C. Well, you want us to read D2 to say taxable year, right?

[00:23:08] Speaker 04:
But that's what you want us to say that it applies to, right?

[00:23:11] Speaker 02:
No, Your Honor, it doesn't need to say taxable year.

[00:23:15] Speaker 02:
It just means the 2005 calendar year.

[00:23:19] Speaker 02:
That is the time period for which the applicable percentage of 20% applies.

[00:23:24] Speaker 04:
But if you look at 102, where they refer to taxable year, it's clear that Congress knew how to differentiate and to actually talk about a period of time that encapsulates income when it wanted to.

[00:23:38] Speaker 02:
It could have done that.

[00:23:39] Speaker 02:
The reason Congress did not do that, I believe, is reflected in the record.

[00:23:43] Speaker 02:
And the US trade representative

[00:23:46] Speaker 02:
on appendix page 1863 and 1864 explained that the European Union's primary concern with any transition rule was that it be limited to two years.

[00:23:57] Speaker 02:
And so Congress was accommodating that concern.

[00:24:00] Speaker 04:
It didn't say limited to two years in terms of what benefits you get.

[00:24:05] Speaker 04:
It just said limited to two years in terms of the transactions at issue.

[00:24:10] Speaker 04:
I mean, there wasn't that trade representative statement.

[00:24:12] Speaker 04:
is not so clear that it couldn't represent, it couldn't support either side in terms of the arguments here.

[00:24:19] Speaker 02:
No, no, the European Union's primary concern was that any transition... Right, so the primary concern was really 101F, where it wouldn't phase out.

[00:24:29] Speaker 04:
It would allow for all kinds of new transactions to get the benefit.

[00:24:33] Speaker 02:
Yes, so I'm talking about during 2004 when this was enacted,

[00:24:39] Speaker 02:
The European Union's primary concern was that any transitional relief be limited to two years.

[00:24:44] Speaker 02:
And that's reflected in the appendix page 1863.

[00:24:47] Speaker 04:
You say we have to interpret contracts in a way that's consistent to the extent possible with our treaty obligations.

[00:24:55] Speaker 04:
But it is true, is it not, that Congress has the absolute right to pass statutes that are not consistent with our treaty obligations.

[00:25:02] Speaker 02:
I agree with that.

[00:25:04] Speaker 04:
And in this particular instance,

[00:25:07] Speaker 04:
Would you agree that to the extent that WTO was concerned and expressed its concern, that Congress knew full well when it passed these statutes that it wasn't completely complying with WTO?

[00:25:21] Speaker 02:
I disagree with that.

[00:25:22] Speaker 02:
And that is the proper inquiry.

[00:25:24] Speaker 02:
I mean, in 2006, there's no question that the WTO ruled that paragraph D and F violated the United States trade obligations.

[00:25:33] Speaker 02:
But in 2004, when Congress enacted those provisions,

[00:25:37] Speaker 02:
The Senate report explains pretty clearly that Congress believed that a two-year phase-out rule was consistent with the United States obligations.

[00:25:46] Speaker 04:
They said they were trying to move toward what the WTO wanted without being unduly punitive to American corporations.

[00:25:55] Speaker 04:
I mean, it's clear that Congress never thought the WTO was right.

[00:26:01] Speaker 02:
Right.

[00:26:01] Speaker 02:
But Congress's desire, as reflected in the legislative history, was to comply with those rulings.

[00:26:07] Speaker 02:
And it compared, it explained in the legislative history that it was necessary and appropriate to have some period of transitional relief.

[00:26:18] Speaker 02:
And Congress believed, and if you read the Senate report, this is expressed there, because the Senate bill that was proposed at the same time actually clearly phased out transitional benefits within two years, by the end of 2006.

[00:26:34] Speaker 02:
And the Senate bill explained that Congress believed that that was consistent in bringing the United States' laws into compliance with WTO obligations.

[00:26:44] Speaker 04:
How do you address the argument that historically this was always done on a transactions-based inquiry, so that in other words it had nothing to do with income at a particular taxable year, it had to do with

[00:26:59] Speaker 04:
with income that arises out of a transaction entered into in a particular.

[00:27:04] Speaker 02:
And that was the case when one regime after another replaced the former regime and gave incentives for exports.

[00:27:14] Speaker 02:
But when it came to finally repealing the export regimes, which is what Congress did, when it finally came to an end,

[00:27:28] Speaker 02:
and that regime was not replaced, it's reasonable for Congress to have provided limited benefits to transactions without granting those transactions relief indefinitely for as long as they may continue.

[00:27:41] Speaker 02:
In other words, Congress was phasing out those benefits, which is consistent with its overall intent to repeal the provision without replacing it with a new one.

[00:27:52] Speaker 04:
But what work does the word

[00:27:58] Speaker 04:
transactions actually do in 101D?

[00:28:04] Speaker 02:
The purpose of that is to describe to which transactions the transitional rule applies.

[00:28:11] Speaker 02:
It applies to transactions occurring during 2005 or 2006.

[00:28:16] Speaker 02:
But it's the subsequent language of the statute that defines the scope of that relief.

[00:28:22] Speaker 02:
And that is what the party's dispute is about.

[00:28:24] Speaker 02:
It's not about whether

[00:28:26] Speaker 02:
the transitional rule applied to the 2006 film distribution agreement, because we agree that it did.

[00:28:33] Speaker 02:
The question is about the scope of relief provided.

[00:28:36] Speaker 01:
And to that issue... Can I ask you just before you sit down, what is the best quote or statement from any of the WTO bodies that said something specifically directed to income

[00:28:56] Speaker 01:
rather than transactions, and how a two-year transition was supposed to be a transition as to income, not a transition as to time for entry into transactions.

[00:29:12] Speaker 01:
Even those transactions would have possibly long tails of their beneficial effects.

[00:29:21] Speaker 02:
We cited the minutes, the 2006 minutes,

[00:29:25] Speaker 02:
in the end of our brief, where the EU... You happen to have like an actual joint appendix site.

[00:29:33] Speaker 02:
That's okay, don't... The European Union representative explained that they welcomed the repeal of the grandfather provision and then recognized that by the end of the year 2006.

[00:29:47] Speaker 01:
But that's not a WTO, let's call them a judicatory decision.

[00:29:52] Speaker 01:
That's like a negotiating

[00:29:55] Speaker 02:
I'm referring to the opposing party in the WTO proceedings.

[00:30:00] Speaker 02:
The European Union stated that it welcomed the repeal of the grandfather provision.

[00:30:05] Speaker 02:
But that's 101F.

[00:30:07] Speaker 02:
Right.

[00:30:07] Speaker 02:
And then that with the expiration of the transitional rule at the end of 2006, that the parties would finally be, the United States would be in compliance, and that their long decades

[00:30:21] Speaker 01:
So when you say two-year transition, it seems to me that language by itself doesn't tell us whether the transition is as to transactions or as to income recognition.

[00:30:36] Speaker 01:
So I'm trying to focus my question on something that says, and what we, the Europeans, mean by two-year transition is no more income benefits to these people even if they're old transactions.

[00:30:54] Speaker 02:
Yeah, just two quick answers.

[00:30:56] Speaker 02:
So the WTO ruled in October, well, with respect to the prior FSC regime,

[00:31:04] Speaker 02:
that illegal export subsidies had to be withdrawn with effect no later than October 1, 2000.

[00:31:11] Speaker 02:
And then, again, the European Union explained that with the expiration of, I guess I need to get the exact language.

[00:31:24] Speaker 02:
Right.

[00:31:24] Speaker 04:
And that's important because the exact language doesn't say, at the end of 2006, this will all be over.

[00:31:30] Speaker 04:
It says that with the expiration of that

[00:31:33] Speaker 04:
grace period, it'll all be over.

[00:31:36] Speaker 04:
And so their interpretation doesn't necessarily mean that they thought that at the end of 2006 there would be no more benefits.

[00:31:47] Speaker 02:
So I found the quote, says that the European Union warmly welcomed the repeal by Congress of the grandfather provisions of the American Jobs Act

[00:31:56] Speaker 02:
and that when the transition rules of that act were to expire at the end of the year, compliance would finally be achieved in this very long saga.

[00:32:06] Speaker 02:
So again, it's paragraph D2 that the government relies on to establish the scope of the transitional relief afforded under the statute, which is limited to the 2005 and 2006 calendar years.

[00:32:29] Speaker 00:
a little additional time.

[00:32:31] Speaker 00:
Thank you, Your Honors.

[00:32:33] Speaker 00:
Just a few points.

[00:32:34] Speaker 00:
I mean, number one, the government's almost singular reliance on D2, I think, is answered by the very first clause of that provision, which it neglects to recognize, which is, for purposes of paragraph one, which ties you right back into paragraph one, you can't interpret D2 as a freestanding provision as they try to do.

[00:32:52] Speaker 00:
I mean, second, with respect to D1, the government's position has become even more strange

[00:32:58] Speaker 00:
Because as I understand my friend this morning, it would say that a transaction entered into before 2005, and so not during 2005, would now benefit from the transitional rule in 2000 in subsection D1, which makes no sense.

[00:33:16] Speaker 00:
And I think that's a product of its efforts, its new interpretation of Section 101C.

[00:33:22] Speaker 00:
In this case, despite 13 years or more of a different interpretation,

[00:33:27] Speaker 00:
And now it's butchered reading of D1.

[00:33:30] Speaker 00:
Third, Judge Toronto, you are right with respect to transactions.

[00:33:35] Speaker 00:
The definition is in 943B1A, Congress clearly understood that transactions would include multi-year agreements, which underscores the significance of it.

[00:33:46] Speaker 01:
And you infer that from the language of leases?

[00:33:49] Speaker 00:
Yes.

[00:33:50] Speaker 00:
Yes.

[00:33:51] Speaker 00:
And so that's, Congress knew that when it referred to transactions in D1, that it was referring to multi-year

[00:33:57] Speaker 00:
transactions that could generate income over multiple years.

[00:34:02] Speaker 01:
There isn't otherwise a definition in the Internal Revenue Code, even something relevant of the term transactions?

[00:34:09] Speaker 00:
No, but obviously Congress is aware of commercial usage and doesn't understand the transactions.

[00:34:15] Speaker 00:
And really, it underscores the anomaly of the government's position, which is why would Congress want to treat a $10 million sale in 2005

[00:34:23] Speaker 00:
differently than a $10 million lease, which was simply paid over the course of 10 years.

[00:34:29] Speaker 00:
Economically, it's the same thing.

[00:34:32] Speaker 04:
And lastly, with respect... On the last point, though, that your friend on the other side mentioned, while WTO's interpretation of our statutes is not binding on us, do you agree that that language from the WTO means they interpreted any benefits to flow

[00:34:52] Speaker 04:
to be at an end at the end of 2006?

[00:34:55] Speaker 00:
Not at all.

[00:34:57] Speaker 00:
Not at all.

[00:34:57] Speaker 00:
I mean, it certainly doesn't say that.

[00:34:59] Speaker 00:
It refers to the transitional rule.

[00:35:00] Speaker 00:
And then it just begs the question of whether that rule was limited to transactions 2005 and 2006 and the ongoing effects or income recognized in later years.

[00:35:12] Speaker 00:
And nothing in the WTO proceedings.

[00:35:15] Speaker 00:
They haven't said anything that suggests that they were concerned about the effects of transactions that were over.

[00:35:22] Speaker 00:
WTO was concerned about new transactions because that's where the competition was.

[00:35:28] Speaker 00:
And I think the clearest example of that is that the WTO did not object to the government's interpretation of 101C.

[00:35:36] Speaker 00:
And I think that's clear, just to give you one side, page 1853 of the Joint Appendix, paragraph 38, it's the European Union brief where it makes clear that it doesn't object to giving full benefits to the ETI regime for transactions

[00:35:52] Speaker 00:
before it entered into and agreed upon in 2004.

[00:35:56] Speaker 00:
And really, when you think about it, that provision, 101C, meant that for transactions before 2005, those transactions would continue to receive the full benefit of the prior ETI regime.

[00:36:11] Speaker 00:
And the government had interpreted that for more than a decade, up to its brief in this case, to mean that you could continue to get the benefit, ETI benefit, for income received

[00:36:19] Speaker 00:
in later years.

[00:36:20] Speaker 00:
That's why it has a form on its website to this day, 8873.

[00:36:24] Speaker 00:
If the EU had objected to the benefits of prior transactions, it would have objected to 101C, but yet we haven't heard a peep from the EU about 101C.

[00:36:34] Speaker 00:
The focus had been on new transactions, and that's why the focus was on 101F.

[00:36:39] Speaker 00:
We would respectfully urge this court to give effect to the statute that Congress enacted and give full effect to US companies to transitional relief for transactions

[00:36:49] Speaker 00:
during 2005 or 2006.

[00:36:50] Speaker 00:
Thank you.