The Measure at Issue

97. The measure at issue in this dispute is the excise tax regime in force in the Philippines as it applies to distilled spirits. The Panel referred to it as the “excise tax”. Under the measure at issue, taxes are collected on distilled spirits in accordance with the criteria set out in Section 141 ot the Philippines' National Internal Revenue Code of 1997 (the “NIRC”), as amended.

98. Under Section 141(a) of the NIRC, distilled spirits are subject to a specific flat tax rate if two requirements are met: (i) the distilled spirits are produced from one of the following raw materials—sap of the nipa, coconut, cassava, camote, buri palm, or from juice, syrup, or sugar of the cane (collectively referred to as “designated raw materials”); and (ii) the designated raw materials are produced commercially in the country where they are processed into distilled spirits. As from 1 January 2011, the flat rate set out in Section 141(a) is 14.68 Philippine pesos (“PHP”) per proof litre (“ppl”).

99. Under Section 141(b) of the NIRC, all distilled spirits that do not meet either of the requirements set forth above are subject to three different tax rates that apply depending on the net retail price (“NRP”) of a 750 millilitre (“ml”) bottle of the spirit.182 As from 1 January 2011, distilled spirits falling under Section 141(b) are subject to a tax of: (i) PHP 158.73 ppl, if their NRP is less than PHP 250; (ii) PHP 317.44 ppl, if their NRP is between PHP 250 and PHP 675; or (iii) PHP 634.90 ppl, if their NRP is more than PHP 675.