CAFC Sustains CVD Investigation on Canadian Wind Towers

Judges Alan Lourie, Sharon Prost and Jimmie Reyna said Commerce adequately rejected Marmen's year-end exchange rate adjustment to the sales denominator after it identified errors in the adjustment. The court also sustained Commerce's decision to countervail three subsidy programs -- additional depreciation for certain Class 1 assets, the GASPETC tax credit and the on-the-job training tax credit.

Following the investigation's preliminary results, Marmen alleged that Commerce erred in not adjusting the sales denominator using an adjustment prepared by Marmen's auditor. The adjustment was to translate all foreign currency sales in its general ledger to Canadian dollars. However, Commerce found "several discrepancies" in the adjustment, including two of the sales coded in Euros that were shown in the original sales documents as conducted in Canadian dollars.

Marmen and the governments of Canada and Quebec took issue with Commerce's claim that it discovered the discrepancies through a spot check, noting instead that the company reported the errors voluntarily and that they represent less than 0.2% of the total adjustment. Reyna said regardless of whether the errors were found independently or offered by Marmen and the Canada and Quebec governments, they "undeniably exist and undermine the reliability of the adjustment.”

"The fact that Commerce's verification did not reveal additional EURO-coded sales does not compel a conclusion that the auditor’s adjustment contains no other errors," the decision said. The agency acted within its statutory obligation to verify parties' submissions and reject "inaccurate and unverifiable information," the court said.

The respondent and the Canadian and Quebecois governments also challenged three subsidy programs Commerce countervailed, the first of which pertained to the additional depreciation for certain Class 1 assets.

The Canadian tax system allows for depreciation deductions from taxable income. "Class 1 assets" have a standard 4% deduction rate, but higher deductions can be claimed for a subset of these assets. In the present case, taxpayers can claim an additional 6% deduction if at least 90% of an eligible building's floor space is used for manufacturing. Also, another 2% can be claimed for "other non-residential buildings."

Marmen and the Canadian governments said these additional deductions reflect the "actual shorter useful life of manufacturing buildings and the normal rate at which they depreciate." Reyna said the court is "unpersuaded," because the additional deductions amount to forgone revenue for the Canadian government. Commerce didn't commit a "fundamental error" by failing to consider that the depreciation rate is based on the "average useful life of a particular asset."

The governing standard doesn't require Commerce to center its decision on "whether a program at issue accurately aligns with the economic reality of building depreciation," the court said.

The second challenged subsidy was a tax credit given to boost employment in the Gaspesie and Quebec regions. Employers can claim a 15% tax credit when filing tax returns for the previous year for total wages paid to eligible employees. The court said that Commerce followed the directive under its regulations to find a benefit in cases involving tax exemptions where the "tax paid by a firm as a result of the program is less than the tax the firm would have paid in the absence of the program.”

While Marmen and the Canadian and Quebecois governments said this regulation, 19 C.F.R. Section 351.503(e), is inapplicable because it provides a general rule whose application would contravene another regulation, the court found differently. The second regulation, 19 C.F.R. Section 351.509(a)(1), tells Commerce to "calculate the benefit received under a program in the year at issue." This regulation doesn't address taxes resulting from prior years' credit. In addition, the statute "explicitly lists a narrow range of scenarios where Commerce may apply offsets in calculating countervailable subsidies," and these scenarios don't include "tax consequences from prior year's benefit," the court said.

Lastly, Marmen and the two governments challenged Commerce's finding that an on-the-job training tax credit was de facto specific. The appellants said Commerce erred in not conducting a de jure specificity analysis and that the agency's comparison approach in its "limited in number" analysis was "methodologically unsound." The court disagreed on both fronts, essentially finding that the credit's low number of recipients makes it specific.

Reyna initially said that the "statute does not make a de jure analysis a prerequisite inquiry for a de facto analysis," and, in fact, the statute specifically says either analysis may be used. The court added that the agency didn't err in using the total corporate tax filers as a "comparator in assessing whether the credit recipients are limited in number." The statute doesn't have a mandatory method for assessing specificity, and the agency "did not exceed" its "latitude" in this case.

Commerce's finding that only around 1.27% of filers received the credit and so were "limited in number" on an "enterprise" basis also doesn't conflict with the Statement of Administrative Action's directive regarding the specificity requirement. This law says it serves to "winnow out only those foreign subsidies which truly are broadly available and widely used throughout an economy" -- something this credit isn't due to its low number of recipients.

(The Government of Quebec v. U.S. , Fed. Cir. # 22-1807, dated 06/21/24; Judges: Alan Lourie, Sharon Prost and Jimmie Reyna; Attorneys: Nancy Noonan of ArentFox for plaintiff-appellant Government of Quebec; Jay Campbell of White & Case for plaintiff-appellants Marmen and Government of Canada; Joanne Osendarp of Blank Rome for plaintiff-appellant Government of Canada; Joshua Kurland for defendant-appellee U.S. government; Maureen Thorson of Wiley Rein for defendant-appellee Wind Tower Trade Coalition)