from the United States Court of Federal Claims in No.
1:15-cv-00824-NBF, Senior Judge Nancy B. Firestone.
Gregory G. Garre, Latham & Watkins LLP, Washington, DC,
argued for plaintiff-appellant. Also represented by Drew
Curtis Ensign, Miriam Fisher, Brian C. McManus, Benjamin
Earl Christensen, Tax Division, United States Department of
Justice, Washington, DC, argued for defendant-appellee. Also
represented by David A. Hubbert, Gilbert Steven Rothenberg,
Prost, Chief Judge, O'Malley and Taranto, Circuit Judges.
O'MALLEY, CIRCUIT JUDGE.
appeal concerns the scope of section 101(d) of the American
Jobs Creation Act of 2004 ("AJCA"), Pub. L. No.
108-357, 118 Stat. 1418 (2004), a "transitional
rule" that places a limit on "the amount includible
in gross income" for "transactions during 2005 and
2006." DWA Holdings, LLC ("DWA") appeals from
the U.S. Court of Federal Claims' ("Claims
Court") summary judgment ruling that income DWA earned
overseas after 2006 pursuant to a 2006 transaction was not
entitled to transitional benefits under section 101(d).
reasons set forth below, we conclude that the Claims Court
erred in holding that section 101(d) only provided
transitional relief for extraterritorial income earned in
2005 and 2006. Accordingly, we reverse and remand for further
case, as in many other cases involving statutory
construction, the history underlying Congress's decision
to enact the statute at issue merits discussion. We discuss
some of that history briefly before turning to the factual
and procedural history of this case.
AJCA was enacted against a backdrop of decades of dialogue
between the United States and other countries with whom we
have treaty obligations. As a starting point, although income
earned by American taxpayers typically is subject to taxation
in the United States, regardless of where in the world the
income is earned, other countries, such as those in Europe,
only tax income earned within their borders. See
H.R. Rep. No. 106-845, at 13 (2000).
the possibility of "double taxation" of foreign
income is a concern both in the United States and abroad,
countries take different measures to address it. Id.
The United States generally provides credits for
taxes paid to foreign governments on income earned abroad,
while European and other systems typically exempt
from taxation income earned abroad. Id. Congress has
long believed that the exemption method used in Europe and
elsewhere puts American companies at a disadvantage in terms
of exports. See Staff of Joint Comm. on Internal
Revenue Taxation, 92d Cong., General Explanation of the
Revenue Act of 1971, at 85-86 (1972); see also id.
at 86 (noting that "other major trading nations
encourage foreign trade by domestic producers in one form or
another, " and describing common methods used); H.R.
Rep. No. 106-845, at 13-14 (describing the rationale for the
enactment of the extraterritorial income regime).
the years, Congress has enacted a number of tax regimes in an
effort to address the imbalance it perceived and to create a
more level playing field for domestic producers. Each time,
however, the United States received push back from its
European trading partners, who claimed each taxing structure
Congress devised resulted in an effective export subsidy for
U.S. producers, in violation of our treaty obligations.
Congress denied the claims made against its respective tax
regimes, in the interest of accommodating its trading
partners and paying due respect to the rulings of
international trade bodies, it continued to revise the
relevant U.S. tax regimes. Importantly, however, Congress
sought to ease the burden on domestic producers imposed by
these responsive tax revisions. It did so primarily by
providing transitional relief for transactions occurring
during specified years following passage of each of these new
example of such transitional relief appeared in the FSC
Repeal and Extraterritorial Income Exclusion Act of 2000
("ETI Act"), Pub. L. No. 106-519, 114 Stat. 2423
(2000), enacted on November 15, 2000. While the ETI Act
applied generally to "transactions after September 30,
2000, " ETI Act § 5(a), the Act allowed previously
established Foreign Sales Corporations ("FSCs") to
continue receiving favorable tax treatment for any
"transactions" that occurred before January 1,
2002, more than a year after the passage of the FSC repeal,
ETI Act § 5(c)(1)(A). Specifically, the law provided
that, "[i]n the case of a FSC (as so defined) in
existence on September 30, 2000, and at all times thereafter,
the amendments made by this Act shall not apply to any
transaction in the ordinary course of trade or business
involving a FSC which occurs" either "before
January 1, 2002" or "after December 31, 2001,
pursuant to a binding contract . . . between the FSC
(or any related person) and any person which is not a related
person; and . . . in effect on September 30, 2000, and at all
times thereafter." Id. (emphasis added).
European Union challenged the ETI regime-in particular, its
transitional rules-in the World Trade Organization
("WTO"). The WTO ruled against the United States,
and, in October 2004, Congress responded by repealing the ETI
Act and enacting the AJCA, the tax scheme before us in this
appeal. See H.R. Rep. No. 108-548(I), at *7 (June
16, 2004) (repealing the exclusion for extraterritorial
income set forth in 26 U.S.C. § 114); AJCA §
101(a). In this go-round, Congress did not enact a regime
specific to exports; instead, it created a more diffuse
benefit for all "domestic production activities, "
regardless of whether they resulted in export sales. AJCA
§ 102. The House Report accompanying the AJCA explained
that the reason for the repeal was to comply with the
WTO's decisions: "The Committee believes it is
important that the United States, and all members of the WTO,
comply with WTO decisions and honor their obligations under
WTO agreements. Therefore, the Committee believes that the
ETI regime should be repealed." H.R. Rep. No.
108-548(I), at 114 (2004).
101 of the AJCA, titled "Repeal of Exclusion for
Extraterritorial Income, " contains a number of
provisions that operate together to "phase out" the
relevant portions of the ETI Act and help domestic companies
transition to a new regime. First, section 101(a) expressly
repeals 26 U.S.C. § 114, the provision in the ETI Act
that excluded extraterritorial income from taxation. AJCA
§ 101(a). And section 101(c), titled "Effective
Date, " provides that the repeal is effective for