Dwa Holdings LLC v. United States ( 2018 )

United States Court of Appeals
for the Federal Circuit
______________________
DWA HOLDINGS LLC,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2017-1358
______________________
Appeal from the United States Court of Federal
Claims in No. 1:15-cv-00824-NBF, Senior Judge Nancy B.
Firestone.
______________________
OPINION ISSUED: May 9, 2018
OPINION MODIFIED: May 30, 2018 *
______________________
GREGORY G. GARRE, Latham & Watkins LLP, Wash-
ington, DC, argued for plaintiff-appellant. Also repre-
sented by DREW CURTIS ENSIGN, MIRIAM FISHER, BRIAN C.
MCMANUS, BENJAMIN SNYDER.
JACOB EARL CHRISTENSEN, Tax Division, United
States Department of Justice, Washington, DC, argued
* This opinion has been modified and reissued fol-
lowing an unopposed motion filed by Defendant-Appellee.
2 DWA HOLDINGS LLC v. UNITED STATES
for defendant-appellee. Also represented by DAVID A.
HUBBERT, GILBERT STEVEN ROTHENBERG, FRANCESCA
UGOLINI.
______________________
Before PROST, Chief Judge, O’MALLEY and TARANTO,
Circuit Judges.
O’MALLEY, Circuit Judge.
This 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).
For the 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 proceedings.
I. BACKGROUND
In this case, as in many other cases involving statuto-
ry construction, the history underlying Congress’s deci-
sion 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.
A. Historical Background
The 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
DWA HOLDINGS LLC v. UNITED STATES 3
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).
Although 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 taxa-
tion income earned abroad. Id. Congress has long be-
lieved 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 anoth-
er,” and describing common methods used); H.R. Rep. No.
106-845, at 13–14 (describing the rationale for the enact-
ment of the extraterritorial income regime).
Over 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 re-
ceived 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 viola-
tion of our treaty obligations.
While 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, Con-
gress sought to ease the burden on domestic producers
4 DWA HOLDINGS LLC v. UNITED STATES
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 tax regimes.
One 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 Septem-
ber 30, 2000,” ETI Act § 5(a), the Act allowed previously
established Foreign Sales Corporations (“FSCs”) to con-
tinue receiving favorable tax treatment for any “transac-
tions” 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 Sep-
tember 30, 2000, and at all times thereafter.” Id. (empha-
sis added).
The 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
DWA HOLDINGS LLC v. UNITED STATES 5
§ 102. The House Report accompanying the AJCA ex-
plained that the reason for the repeal was to comply with
the WTO’s decisions: “The Committee believes it is im-
portant that the United States, and all members of the
WTO, comply with WTO decisions and honor their obliga-
tions under WTO agreements. Therefore, the Committee
believes that the ETI regime should be repealed.” H.R.
Rep. No. 108-548(I), at 114 (2004).
Section 101 of the AJCA, titled “Repeal of Exclusion
for Extraterritorial Income,” contains a number of provi-
sions 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 “transactions after
December 31, 2004”—two months after the enactment of
the statute. Id. § 101(c).
Section 101(d), the provision at issue in this case, pro-
vides the following “Transitional Rule for 2005 and 2006”:
(1) IN GENERAL.—In the case of transactions dur-
ing 2005 or 2006, the amount includible in gross
income by reason of the amendments made by this
section shall not exceed the applicable percentage
of the amount which would have been so included
but for this subsection.
(2) APPLICABLE PERCENTAGE.—For purposes of
paragraph (1), the applicable percentage shall be
as follows:
(A) For 2005, the applicable percentage
shall be 20 percent.
(B) For 2006, the applicable percentage
shall be 40 percent.
6 DWA HOLDINGS LLC v. UNITED STATES
Id. § 101(d). Finally, Congress included a “grandfather
provision” in AJCA section 101(f), titled “Binding Con-
tracts,” providing that the repeal “shall not apply” to
certain transactions occurring pursuant to a “binding
contract” that was “in effect on September 17, 2003, and
at all times thereafter.” Id. § 101(f).
The European Union again objected before the WTO,
arguing that the United States had failed to entirely
remove the prohibited ETI subsidies. Specifically, it
argued that the grandfather provision of section 101(f)
improperly maintained the full ETI tax benefit for certain
transactions indefinitely, while the transitional rule of
section 101(d) provided a reduced, but still objectionable,
ETI tax benefit relating to transactions entered into in
2005 and 2006. The United States, in filings made to the
WTO, characterized section 101(f) as “exempt[ing] certain
pre-existing binding contracts from the repeal of the ETI
tax exclusion.” J.A. 1863. Turning to section 101(d), it
explained that the provision “provides for a two-year
phase out of the ETI Act tax exclusion.” Id. It further
submitted that, in dispute settlement negotiations with
European community members, “[a]lthough there were
legislative proposals then pending for transition periods
as long as five years, Congress accommodated the
E[uropean Communities’] concerns by limiting the transi-
tion period to two years, and by reducing the amount of
the tax exclusion in each year.” Id. And, according to the
United States, “Congress did so with the understanding
that, together with repeal, limiting the transition period
to two years would resolve the dispute.” Id. In other
words, the United States made clear that, while Congress
was sensitive to the WTO’s concerns, it would continue to
seek out ways to alleviate any undue harshness to domes-
tic companies caused by the need to make continual
changes to our tax regimes.
In September 2005, a WTO panel agreed with the Eu-
ropean Union that the ACJA improperly maintained
DWA HOLDINGS LLC v. UNITED STATES 7
certain ETI subsidies, and stated that the United States
therefore continued to fail to implement fully the WTO’s
recommendations and rulings to withdraw the prohibited
subsidies. Specifically, it found that, to the extent sec-
tion 101 of the AJCA “maintains prohibited FSC and ETI
subsidies through these transitional and grandfathering
measures, it continues to fail to implement fully” direc-
tives to “withdraw the prohibited subsidies and to bring
its measures into conformity with its obligations under
the relevant covered agreements.” J.A. 1839. A WTO
appellate body affirmed the panel’s decision.
In May 2006, Congress repealed section 101(f) in the
Tax Increase Prevention and Reconciliation Act of 2005
(“TIPRA”), Pub. L. 109-222, § 513, 120 Stat. 345, 366
(2006), effective for “taxable years beginning after the
date of the enactment of this Act [May 17, 2006].” It did
not repeal or revise section 101(d), however.
B. Factual Background
None of the material facts are in dispute. DWA is a
Delaware corporation with its principal place of business
in Glendale, California. It began as a division of Dream-
Works Studios (formally, DreamWorks L.L.C.), a film
production label formed in 1994. DWA is in the business
of producing animated motion pictures, and has relied on
third parties for the distribution of its films.
DWA was spun off from DreamWorks Studios in a
public offering on October 27, 2004, and thereafter en-
tered into a distribution agreement dated December 9,
2005 (“2005 Agreement”) with Paramount Pictures Corpo-
ration (“Paramount”) and DreamWorks L.L.C. to replace a
pre-existing distribution agreement. The 2005 Agreement
granted Paramount, which was set to acquire Dream-
Works L.L.C., the exclusive, worldwide rights to distrib-
ute certain of DWA’s then-existing and future animated
feature films.
8 DWA HOLDINGS LLC v. UNITED STATES
Paramount acquired DreamWorks L.L.C. on January
31, 2006, and the parties terminated and reinstated the
2005 Agreement by entering into a new distribution
agreement (“2006 Transaction”), adding Viacom Overseas
Holdings C.V. (“Viacom”), an affiliate of Paramount, as a
party thereto. The 2006 Transaction is nearly identical in
all material respects to the 2005 Agreement, except that
Viacom replaced Paramount as the distributor of the
licensed material outside of the United States and Cana-
da. With limited exception, the motion pictures that are
the subject of the 2006 Transaction were produced in the
United States, and all licenses granted under the 2006
Transaction are for use by the licensees outside of the
United States. The term of each license is determined on
a film-by-film basis.
Pursuant to the 2006 Transaction, DWA recognized
qualifying ETI as contemplated under former section 114
of the Internal Revenue Code of 1986, as amended, for the
taxable year ending December 31, 2006 (“Tax Year 2006”).
For Tax Year 2006, DWA invoked section 101(d), and
excluded from gross income 60 percent of the extraterrito-
rial income that constituted “Qualifying Foreign Trade
Income” it received in Tax Year 2006 attributable to the
2006 Transaction. At the same time, DWA included in
gross income on its 2006 Form 1120, U.S. Corporation
Income Tax Return, 40 percent of its extraterritorial
income attributable to the 2006 Transaction. The IRS
agreed that DWA’s claimed exclusion under section 101(d)
for Tax Year 2006 was allowable. DWA continued to
receive income from its 2006 license during the calendar
years ending in 2007, 2008, and 2009.
DWA timely filed its tax forms for the years 2007,
2008, and 2009, but did not claim any exclusion under
section 101(d) for extraterritorial income recognized in
those calendar years attributable to the 2006 Transaction.
These consolidated forms were selected for a routine IRS
examination. During that examination, DWA realized
DWA HOLDINGS LLC v. UNITED STATES 9
that it had not sought benefits under section 101(d),
despite discovering it was entitled to do so. DWA, thus,
timely filed affirmative income tax refund claims for tax
years 2007, 2008, and 2009, asserting that it was entitled
to an exclusion under section 101(d) for qualifying extra-
territorial income recognized in these years attributable
to the 2006 Transaction. The total amount DWA claimed
it was owed in refunds exceeded $4.4 million, represent-
ing 60 percent of the income received pursuant to the
2006 license during those three years. The IRS disal-
lowed DWA’s refund claims on November 3, 2014. DWA
paid the disputed amount in full.
C. Procedural Background
On August 3, 2015, DWA sued the government in the
Claims Court under the Tucker Act, seeking to recover its
claimed refund. The parties filed cross-motions for sum-
mary judgment on the dispositive legal question of
whether section 101(d) applies to income received in 2007,
2008, and 2009 from a transaction finalized in 2006. The
Claims Court sided with the government, holding that
“the tax benefits provided in section 101(d)’s transition
rule were limited to income recognized in 2005 or 2006.”
DreamWorks Animation SKG, Inc. v. United States, 128
Fed. Cl. 624, 630 (2016). In reaching this conclusion, the
Claims Court concluded that the references in subsection
101(d)(2) to “[f]or 2005” and “[f]or 2006” should be inter-
preted to refer to the latter part of subsection 101(d)(1),
which refers to “the amount includible in gross income,”
rather than the earlier part of subsection 101(d)(1), which
explains that the transitional rule applies “[i]n the case of
transactions during 2005 and 2006.” Id.
The Claims Court also believed that section 101(f)’s
“Binding Contract Rule” supported the government’s
position, as this rule was the only way in which Congress
sought “to confer long-term benefits to taxpayers.” Id. at
631. The court also found that section 102’s use of the
10 DWA HOLDINGS LLC v. UNITED STATES
phrase “taxable year” was not significant in light of the
plain language of section 101(d). Id. Finally, although
the Claims Court found the language of section 101(d)
unambiguous, it examined the legislative history, and
concluded that nothing in it supported DWA’s position.
The Claims Court also concluded that Congress’s decision
to repeal section 101(f) in 2006 supported the govern-
ment’s interpretation because it reflected a congressional
desire to comply with the WTO rulings. Id. at 631–34.
DWA timely appealed. We have jurisdiction under
28 U.S.C. § 1295(a)(3).
II. DISCUSSION
We review grants of summary judgment by the
Claims Court and questions of statutory interpretation de
novo. Wells Fargo & Co. v. United States, 827 F.3d 1026,
1032 (Fed. Cir. 2016). Thus, the sole question on appeal
is whether section 101(d) provides transitional relief for
all extraterritorial income received from transactions
entered into in 2005 and 2006, including income from
such transactions recognized after 2006, or whether the
provision is instead limited to extraterritorial income
recognized during those years. The Claims Court con-
cluded that section 101(d) limits tax relief to extraterrito-
rial income recognized in those years. We disagree.
A. Plain Meaning and Statutory Context
“As in any case of statutory construction, our analysis
begins with the language of the statute.” Hughes Aircraft
Co. v. Jacobson, 525 U.S. 432, 438 (1999) (internal quota-
tion marks and citation omitted). “The first step ‘is to
determine whether the language at issue has a plain and
unambiguous meaning with regard to the particular
dispute in the case.’” Barnhart v. Sigmon Coal Co., Inc.,
534 U.S. 438, 450 (2002) (quoting Robinson v. Shell Oil
Co., 519 U.S. 337, 340 (1997)); see also Gross v. FBL Fin.
Servs., Inc., 557 U.S. 167, 175 (2009) (“Statutory construc-
DWA HOLDINGS LLC v. UNITED STATES 11
tion must begin with the language employed by Congress
and the assumption that the ordinary meaning of that
language accurately expresses the legislative purpose.”
(citation omitted)). We also “must read the words ‘in their
context and with a view to their place in the overall
statutory scheme.’” King v. Burwell, –– U.S. ––, 135 S.
Ct. 2480, 2489 (2015) (quoting FDA v. Brown & William-
son Tobacco Corp., 529 U.S. 120, 133 (2000)). This is
because statutory “[a]mbiguity is a creature not [just] of
definitional possibilities but [also] of statutory context.”
Brown v. Gardner, 513 U.S. 115, 118 (1994).
The plain language of section 101(d) confers decreas-
ing tax benefits for transactions entered into in 2005 and
2006. The provision begins with the straightforward
clause, “[i]n the case of transactions during 2005 or 2006,”
specifying the universe of transactions to which the
remainder of the provision shall apply. AJCA § 101(d)(1).
The provision then mandates that the “amount includible
in gross income” for such transactions “shall not exceed
the applicable percentage[s],” as defined by subsection
(d)(2). Id. Thus, for transactions entered into in 2005,
the amount includible in gross income is capped at 20
percent; for transactions entered into in 2006, the amount
includible in gross income is capped at 40 percent.
Section 101(d) does not reference income earned during
the tax years 2005 or 2006. Rather, Congress’s use of the
word “transactions,” which the AJCA’s predecessor stat-
ute expressly defined to include deals such as “leases” or
“rentals” from which income would be received in install-
ments over periods of time, 26 U.S.C. § 943(b)(1)(A)
(repealed 2004), strongly suggests that lawmakers in-
tended to provide tax benefits for extraterritorial income
derived from transactions entered into in 2005 and 2006,
regardless of the calendar or tax year in which that in-
come was earned. See Goodyear Atomic Corp. v. Miller,
486 U.S. 174, 184–85 (1988) (“We generally presume that
12 DWA HOLDINGS LLC v. UNITED STATES
Congress is knowledgeable about existing law pertinent to
the legislation it enacts.” (citation omitted)).
Subsection 101(d)(2) is consistent with this reading.
The phrase “[i]n the case of transactions during 2005 or
2006” recited in subsection 101(d)(1) describes the cir-
cumstances in which transitional relief is available under
the AJCA. AJCA § 101(d)(2) (emphasis added). In sub-
section 101(d)(2), Congress specified the “applicable
percentage[s]” to be used “[f]or purposes of paragraph (1)”
in both of those circumstances: “[f]or 2005, the applicable
percentage shall be 20 percent,” and “[f]or 2006, the
applicable percentage shall be 40 percent.” AJCA
§ 101(d)(2). Thus, subsection 101(d)(2) explains how to
calculate the treatment of a given transaction by plugging
the applicable percentages into subsection 101(d)(1). It
does not, as the government suggests, act as a standalone
provision that limits the scope of transitional relief avail-
able under the AJCA.
The “last antecedent” canon of statutory construction
confirms that Congress adopted a transaction-based rule
in section 101(d). “The doctrine of the last antecedent is a
canon of statutory construction, which states that ‘qualify-
ing words, phrases and clauses must be applied to the
words or phrases immediately preceding them and are not
to be construed as extending to and including others more
remote.’” Demko v. United States, 216 F.3d 1049, 1053
(Fed. Cir. 2000) (quoting Wilshire Westwood Assocs. v. Atl.
Richfield Corp., 881 F.2d 801, 804 (9th Cir. 1989)); see
also Barnhart v. Thomas, 540 U.S. 20, 21 (2003) (describ-
ing “the grammatical ‘rule of the last antecedent,’ accord-
ing to which a limiting clause or phrase . . . should
ordinarily be read as modifying only the noun or phrase
that it immediately follows . . .”). In this case, the word
immediately preceding the phrase “during 2005 or 2006”
is “transactions,” not “income.” Thus, applying this
canon, the statute concerns transactions entered into in
2005 or 2006, not income earned in those years.
DWA HOLDINGS LLC v. UNITED STATES 13
The Claims Court’s contrary understanding of section
101(d) is erroneous. First, its belief that the phrases “[f]or
2005” and “[f]or 2006” in subsection 101(d)(2) relate “not
to ‘transactions’ but to ‘the amount includible in gross
income’” for those years because “[o]nly ‘income’ can be
subject to certain percentages” for a given year, Dream-
works, 128 Fed. Cl. at 630, places the cart before the
horse. Subsection 101(d)(2) lists applicable percentages
“[f]or purposes of paragraph (1),” yet the Claims Court
does not grapple with this language. Instead, it attempts
to interpret subsections 101(d)(2)(A) and (B) as
standalone provisions, a position that makes no sense
when both are subsections of the same overall provision—
section 101(d). Second, under both the government and
the Claims Court’s interpretation, subsection 101(d)(1)
would have recited that, “[f]or income recognized in”
either 2005 or 2006, the applicable percentage would be
20 or 40 percent, respectively. This is not, however, what
the subsection provides. The government’s steadfast
effort to read the word “transactions” out of section 101(d)
is not enough to justify doing so. Finally, neither the
government nor the Claims Court have cited any case
employing the “last antecedent” canon across different
subsections as they try to do, and we are aware of none.
Three other provisions in the AJCA—sections 101(c),
101(f), and 102—make clear both that Congress intended
to adopt a transaction-based approach in section 101(d),
and that it knew how to adopt an income-recognition-
based approach when it desired to do so. Congress,
through section 101(c), specified that the repeal would
apply only to “transactions after December 31, 2004,”
meaning that taxpayers were not required to pay taxes on
any Qualifying Foreign Trade Income generated by a
transaction entered into prior to that date. The AJCA
was enacted on October 22, 2004, meaning that transac-
tions entered into between that date and December 31,
2004, retained the full benefit of the prior ETI regime,
14 DWA HOLDINGS LLC v. UNITED STATES
regardless of the year in which the income was recog-
nized. The IRS has adopted this understanding of section
101(c) in several informal agency guidance materials that
were disseminated to the public. See, e.g., I.R.S. Chief
Couns. Mem. (“CCM”) 201,625,011, at 6 (June 17, 2016),
http://www.irs.gov/pub/irs-wd/201625011.pdf (“[I]n the
case of a lease entered into after September 30, 2000, but
before January 1, 2005, that met all the requirements
under the ETI exclusion provisions, all of the income
received from that lease qualifies for ETI exclusions
regardless of when it is received . . . .” (footnote omitted));
CCM 200,813,041 (Dec. 17, 2007), http://www.irs.gov/pub
/irs-wd/0813041.pdf; CCM AM 2007-001 (Jan. 12, 2007),
https://www.irs.gov/pub/irs-utl/am2007001.pdf.
The IRS’s continued use of Form 8873, the form on
which taxpayers can claim transitional benefits for extra-
territorial income earned pursuant to transactions en-
tered into before December 2004, underscores that
sections 101(c) and 101(d) are transaction-based provi-
sions. See IRS, Form 8873 (rev. Dec. 2010),
http://www.irs.gov/pub/irs-pdf/f8873.pdf; 81 Fed. Reg.
66,132 (Sept. 26, 2016) (revealing that the IRS, in 2016,
sought and obtained approval from the Office of Manage-
ment and Budget to continue using Form 8873). If, as the
government now argues, transitional benefits are not
available for any tax year after 2006, then Form 8873
would be obsolete. It is not plausible that Congress would
have employed a transaction-based approach in section
101(c) but an income-recognition-based approach in
section 101(d), where the former concerns “transactions
after December 31, 2004” and the latter applies to “trans-
actions during 2005 or 2006.”
At oral argument, the government posited that in-
come received from a 2004 transaction would receive the
full benefit of the prior ETI regime under section 101(c),
provided such income was earned prior to December 31,
2004. See Oral Arg. at 17:58–18:08, available at
DWA HOLDINGS LLC v. UNITED STATES 15
http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20
17-1358.mp3. When asked how it believed income from a
2004 transaction that was received in 2005 should be
treated, the government answered that, under section
101(c), the repeal would be effective for that income, but
under section 101(d), there would be limited transitional
relief available for that income. See id. at 18:09–18:32.
The government’s understanding runs contrary to the
structure of the AJCA, which, as discussed above, places
the “applicable percentage” provisions under section
101(d). If the government’s theory were sound, the “ap-
plicable percentage” provisions would need to be structur-
ally located so as to apply to both sections 101(c) and
101(d)—i.e., they would either need to be standalone
provisions that apply to all transactions, or similar provi-
sions would need to be located under section 101(c).
Neither, of course, is true.
Former section 101(f) likewise employed a transac-
tion-based approach. This provision exempted “any
transaction” in the ordinary course of a trade or business
that was made pursuant to a binding contract in place on
September 17, 2003. There is nothing in the language or
structure of this provision that curtailed the duration of
pre-repeal benefits for such transactions—in fact, as
discussed in greater detail below, it was the lack of any
temporal limitation that brought this provision within the
European Union’s crosshairs.
Finally, section 102, the provision immediately follow-
ing section 101, contains a new tax benefit applicable to
all “domestic production activities.” AJCA § 102. Like
section 101, section 102 includes a transitional period. Id.
§ 102(a)(2). But, while the extraterritorial income transi-
tional rule in section 101(d) applies in the case of transac-
tions entered into during 2005 or 2006, the transitional
provision in section 102(a) provides that, “[i]n the case of
any taxable year beginning after 2004 and before 2010,”
the new domestic production activity benefit would be
16 DWA HOLDINGS LLC v. UNITED STATES
applied using “transition percentage[s]” that the AJCA
then set out in a table covering “taxable years beginning
in” “2005 or 2006” and “2007, 2008, or 2009.” Id. Thus,
section 102 reveals that the drafters of the AJCA knew
how to craft a transitional rule based on when income was
recognized, and that this language is markedly different
from the language employed in section 101(d). “[W]here
Congress includes particular language in one section of a
statute but omits it in another section of the same Act, it
is generally presumed that Congress acts intentionally
and purposely in the disparate inclusion or exclusion.”
Brown, 513 U.S. at 120 (citation omitted). Indeed, the
“‘[n]egative implications raised by disparate provisions
are strongest’ in those instances in which the relevant
statutory provisions were ‘considered simultaneously
when the language raising the implication was inserted.’”
Gomez-Perez v. Potter, 553 U.S. 474, 486 (2008) (quoting
Lindh v. Murphy, 521 U.S. 320, 330 (1997)). Such is the
case here.
For the foregoing reasons, we conclude that section
101(d) unambiguously provides transitional relief for all
extraterritorial income received from transactions entered
into in 2005 and 2006, even if that income is received in
later years.
B. Legislative History
Because we conclude that the text of section 101(d) is
unambiguous, we need not consider its legislative history
or subsequent legislative events to discern the meaning or
scope of the provision. See Energy E. Corp. v. United
States, 645 F.3d 1358, 1362 (Fed. Cir. 2011) (“The plain
language of the statute here controls and there is no need
to seek a contrary legislative intent.”). We observe,
however, that—contrary to what the Claims Court be-
lieved—the legislative history does support DWA’s inter-
pretation of section 101(d).
DWA HOLDINGS LLC v. UNITED STATES 17
First, the 2004 House Report accompanying the AJCA
bolsters the understanding that section 101(d) was meant
to afford tax relief for extraterritorial income resulting
from transactions entered into in 2005 and 2006. The
report explains that, “[f]or transactions after 2004, the
provision provides taxpayers with 80 percent of their
otherwise-applicable ETI benefits for transactions during
2005 and 60 percent of their otherwise applicable ETI
benefits for transactions during 2006.” H.R. Rep. No. 108-
548(I), at 114 (2004) (emphases added). As discussed
above, the ETI regime that Congress enacted years before
the AJCA employed a broad definition of “transaction”
that included not only deals structured as a “sale” from
which income would be received as a single payment, but
also deals structured as “leases” or “rentals” from which
income would be received in installments over periods of
time. 26 U.S.C. § 943(b)(1)(A) (repealed 2004). All of the
prior tax regimes relating to the taxation of extraterrito-
rial income employed a transaction-based structure. “It is
not lightly to be assumed that Congress intended to
depart from a long established policy.” United States v.
Wilson, 503 U.S. 329, 336 (1992) (citation omitted).
Second, the fact that Congress repealed section 101(f)
in 2006 but chose not to repeal section 101(d) does not, as
the government contends, indicate that Congress did not
actually intend to create a transaction-based transitional
benefit when it enacted the AJCA two years earlier. Had
Congress intended to repeal all provisions with ongoing
tax benefits for domestic producers, it would have had
more reason to repeal section 101(c), which provided even
greater tax benefits for pre-2005 transactions than section
101(d) did for 2005 and 2006 transactions. Congress,
however, left section 101(c) in place. We conclude from
the foregoing that Congress’s decision to repeal section
101(f) while leaving sections 101(c) and (d) untouched
reveals that it was focused on halting benefits for transac-
tions entered into after 2006 (pursuant to binding con-
18 DWA HOLDINGS LLC v. UNITED STATES
tracts “in effect on September 17, 2003, and at all times
thereafter”), rather than on altering tax rules for transac-
tions that had already occurred. Indeed, one senator
remarked that the European Union had indicated that its
real objection to the AJCA was to “the grandfather clause
for sales contracts,” and that it “was willing to accept the
remaining time on the 2-year transition period,” and even
“the grandfathering of leasing contracts.” 152 Cong. Rec.
S4440-41 (daily ed. May 11, 2006) (statement of Sen.
Baucus).
Finally, we disagree with the government’s contention
that it is relevant to determining the scope of section
101(d) that Congress enacted both the ETI Act and the
AJCA in an effort to comply with WTO rulings indicating
that the United States should withdraw prohibited subsi-
dies “without delay.” That argument fails to recognize
that section 101(d) would have run afoul of the WTO’s
interpretation of the United States’ treaty obligations
under either interpretation of the provision espoused by
the parties. See J.A. 1940 ¶ 85 (ruling by WTO appellate
panel that “the Jobs Act, by virtue of its transition and
grandfathering provisions, does not fully withdraw the
ETI subsidies found in the previous proceedings to be
prohibited”). It is just as likely that Congress intended to
quell concerns over the most objectionable provision in the
AJCA—section 101(f)—while leaving relief in place for all
other transactions. A congressional desire to avoid dis-
rupting settled expectations for American producers,
while still trying to appease its trading partners, is not
unheard of; in fact, that balance was struck repeatedly in
prior tax regimes regarding extraterritorial income. In
any event, WTO decisions are “not binding on the United
States, much less this court.” Timken Co. v. United
States, 354 F.3d 1334, 1344 (Fed. Cir. 2004).
DWA HOLDINGS LLC v. UNITED STATES 19
III. CONCLUSION
For the foregoing reasons, we reverse the Claims
Court’s entry of summary judgment in favor of the gov-
ernment and remand for further proceedings.
REVERSED AND REMANDED
COSTS
Costs to DWA.