Guardian Industries - Foreign tax credits and Group Consolidation

I have long been trying to arrange some time to go through a recent US case (Guardian Industries) concerning the interaction of the check-the-box rules and the complex US foreign tax credit rules. But recently announced changes to the foreign tax credit rules, which can be seen as a reaction to the outcome of this case, convinced me that it would be worth wile attempting to understand the underlying issues surrounding the Guardian Industries Case (March 2005).

The issue in this case was whether Guardian was entitled to a foreign tax credit for corporate tax paid or accrued by its Luxembourg top-tier subsidiary (GIE) with respect to the taxable income of the Guardian Luxembourg Group. As they say on the London tube “mind your step” because the facts of the case involve some degree of complexity.

Basically, the facts can be summarized as follows:
- Guardian Industries, a US leading manufacturer of glass products for commercial and residential applications, conducted its manufacturing and distribution operations in a range of jurisdictions including Luxembourg;
- In Luxembourg, the Guardian group had various subsidiaries ultimately held by a US corporation. These subsidiaries were taxed under the local fiscal unity rules (i.e. consolidation), forming the so-called Guardian Luxembourg Group for Luxembourg tax purposes;
- The top tier Luxembourg company was GIE which in turn held controlling interests in the remainder Luxembourg companies;
- GIE elected under the check the box rules to be disregarded as an entity separate from its shareholder in 2001, whilst the remaining Luxembourg group companies continued to be treated as separate legal entities;
- Due to it’s check the box election and in accordance with Reg § 1.301.7701-2(a), GIE would be treated for U.S. tax purposes in the same manner as that of a branch of its US shareholder; and
- Even though it elected to be treated as a branch in the US, GIE still was in Luxembourg the top tier company of the group. In fact, GIE was responsible in 2001 for corporate income tax payments amounting approximately to Euro 3,5 million.

Apparently, in accordance with Luxembourg law, GIE was liable for, and paid or accrued the corporate income taxes for all group members (i.e. lower tier subsidiaries). On the other side of the Atlantic, the obvious happened: Guardian attempted to claim credit for all Luxembourg tax paid by GIE (its branch), but included in its US income only the income of GIE (i.e. excluding thereby income of the other Luxembourg subsidiaries).

The IRS quickly denied the claims for a direct foreign tax credit, on the basis that (1) Luxembourg law does not render GIE solely liable for the corporate tax paid or accrued with respect to the Guardian Luxembourg Group; (2) that each member of the Group becomes jointly and severally liable for the Group’s aggregate tax liability; (3) and that the US Treasury Reg. § 1.901-2(f)(3) allocate the foreign tax among them regardless of who actually remits the tax.

Guardian Group, on the other hand, held that under Luxembourg law GIE alone was legally liable for the 2001 corporate income tax, and not the other Group members. As such, Guardian US is thereby entitled to a direct foreign tax credit on the amounts paid by GIE.

Since the focus in this case was on how Luxembourg group taxation was structured, it was necessary to seek expert testimonies in order to adequately resolve this conflict. The expert testimonies from Luxembourg concluded that only the parent company is liable for the group income tax. As such, the United States Court of Federal Claims reached the decision that, since GIE was solely liable for the 2001 corporate tax payments and that there exists no joint or several liability on behalf of the members of the Group, GIE was entitled to a direct tax credit.

The Federal Claims decision was reached despite the fact that Guardian claimed a credit for the foreign taxes paid by the foreign parent without having to include the corresponding income of its subsidiaries. The tax planning scheme (probably used in European jurisdiction that provide consolidation or fiscal unity regimes) was simply vindicated on the basis of the literal interpretation of the existing rules.

The US tax authorities did not wait to long to react to this defeat and responded in the form of proposed regulations (REG-124152-06), to be applicable as of 1 January 2007. The proposed regulations establish new principles for determining who is considered a “taxpayer” for purposes of the direct and indirect foreign tax credits. The tax planning scheme explored in the Guardian case is tackled by (for example) providing that the foreign law is “considered to impose” legal liability for an income tax on the person who is required to take the underlying income into account for foreign income tax purposes.

The new rules are designed to ensure something that strangely was not previously in the law, i.e. a US foreign tax credit is only available when the income that gave rise to the tax also is subject to U.S. income tax.

The proposed regulations also set out specific rules to apply in the context of reverse hybrid entities (i.e., an entity that is a corporation for U.S. income tax purposes but is treated as a branch or pass-through entity under foreign law) and hybrid entities (i.e., an entity that is a partnership for U.S. income tax purposes but is treated as an entity under foreign law). Another ball game altogether.

Note: I first got acquainted with the issue of US foreign tax credit planning during Prof. Lokken lessons in US international Taxation in Leiden (2003). Even though coming from a tax credit country myself, the US FTC rules always astonished me not only because of their inherent complexity but also due to the degree of sophistication of the techniques for minimizing U.S. tax put in play by taxpayers. The Guardian case is perhaps a rather straightforward example of foreign tax credit planning that may be said to undermine the basic premise of the US international tax system: (i.e. taxation of worldwide income with credit for foreign income taxes) but I am sure that there is much more out there. For example to understand the underlying issues concerning the use of reverse hybrids and hybrids for FTC planning, I would perhaps suggest again the reading of Prof. Lokken, “Territorial Taxation: Why Some U.S. Multinationals May Be Less Than Enthusiastic About the Idea (and Some Ideas They Really Dislike)”.

OECD reaches out to the world: a world tax organization in the making?

Is there a “true” intergovernmental forum on a global level to deal with questions of taxation? The answer that lawyers prefer is “it depends”! It is true that the Organisation for Economic Co-operation and Development (OECD), following the footsteps of the League of Nations, carried out pioneer work in the field of international taxation but the question remains if it is worldwide representative. Projects under the auspices of the United Nations are still pending.

The OECD is an international organisation well known to all international practitioners. This Paris-based international organization serves as think-tank for reform efforts in a number of policy areas, including international taxation.

The OECD is composed currently of thirty full members although there are plans for enlargement. According to recent plans, it may be expected that 6 to 10 countries could join by 2012, potentially raising membership to 40 countries. Chile, Israel and the six newest EU countries (Estonia, Latvia, Lithuania, Cyprus, Malta and Slovenia) are amongst the countries that are well placed to become new OECD members. This enlargement would reduce the falling threshold of global output from its members in the recent decade as regards the new rising economies. Issues concerning membership and increased cooperation with non-members will probably be discussed during the OECD 2007 ministerial meeting. The question then is if it expected also a rise in the profile of OECD, specially in terms of its influence in the tax field?

Within the OECD, the Committee on Fiscal Affairs is the main OECD body that drives international tax reform efforts, including revisions to the OECD model tax treaty and Commentary and the transfer pricing guidelines. The CFA brings together senior officials from all thirty-member governments who play an active role in formulating and implementing tax policies and provides a forum for exchanging views on tax policy and administrative issues. Although the OECD Secretariat and government officials generally are the main active parties, there is frequent consultation with outside institutions, including business representatives. The Centre for Tax Policy and Administration (CTPA) plays a supporting role to the CFA, namely in setting tax standards and guidelines, mutual assistance, supporting national tax reforms, resolving tax disputes, tax administration and engaging non-OECD economies.

It is interesting to note that there is an increasing cooperation of the OECD with non-OECD economies. Their input consists of participating as observers in the CFA meetings (Argentina, Chile, China, Russia and South Africa) and a dialogue with over 70 non-OECD economies for example through the OECD Multilateral Tax Centres. Apparently, the CFA mission statement requires it to encourage the integration of non-OECD countries into the world economy by adopting its standards, guidelines etc. This assistance includes also advising those countries to secure their tax bases, perhaps by using the techniques developed through the years by OECD member countries. The programme for non-OECD countries falls into 2 main categories. The first category includes core CFA topics such as tax treaties, transfer pricing and exchange of information. The second category includes three demand driven programmes with a strong development focus, such as the new partnership for African development (NEPAD), Middle East and North Africa (MENA) and South Eastern Europe (SEE).

But who better to acknowledge the OECD work in the tax field than its Secretary-General. According to Angel Gurría (OECD Secretary-General), “tax is one of the big success stories of the OECD. Our engagement with our members and key non-OECD economies has enabled us to maintain our lead role in setting the rules of the game for international taxation. Our analytical work provides governments with unparalleled information on the design and implementation of our tax systems”.

In fact in the second half of the 1990s, the OECD launched more and more ambitious and multilateral plans such as the one aimed at cracking down harmful tax practices in member states and in non-OECD jurisdictions. A good example has been the recent Global Forum on Taxation efforts on improving transparency and to establish effective exchange of information. Behind the scenes, the influence of the OECD is growing and that is demonstrated by the presence of OECD Multilateral Tax Centres in Ankara, Budapest, Seoul, Mexico City and Vienna.

So is this a world tax organization in the making?

At this stage, I would say no. One thing appears to be the OECD extending beyond its borders by for example attacking low-tax jurisdictions, attempting to set widely accepted standards and guidelines and improve mutual assistance. Another is calling the OECD a world tax organization in the making. The step (although probably in the mind of some) is still far-fetched.

I should mention that although highly applauded, an organization such as the OECD does not live without some contestation to its legitimacy. For example, the Center for Freedom and Prosperity, a Washington-based lobbying organisation, has been very critical of the role of the OECD in tax matters. Their recent attempt includes supporting the inclusion in the US spending bill of language, which would restrict OECD funding for international tax harmonization schemes!

I would say even if the OECD would probably have to pass through some difficult waters in the future, now it is time to cash in the credit for the good work done so far in the field of international tax. Although specific topics may be criticized individually by being sometimes over protectionist, the overall has been more than positive.

Let’s see the next chapters!

Credit vs Exemption: a discussion crossing the Atlantic

Jurisdictions generally adopt two ways of reducing or eliminating the double taxation of income, namely the exemption method, whereby the income is exempted from tax altogether (although income may be taken into account for the purposes of calculation of the tax payable) or the credit method, whereby the foreign income is taxed but the foreign tax is credited against the final tax payable (1). There are jurisdictions, such as the Netherlands, that have been historically strong advocates of an exemption system in direct investment. There are other countries, such as the US, that have backed the idea of worldwide taxation (including their CFC rules) coupled with a credit system. There are several other jurisdictions that just follow the direction of the wind!

A lot of discussion in the tax community is presently coming out of a possible U.S. move from the present credit system to a territorial/exemption system, whereby income from active business operations in foreign countries, whether carried on directly or through a subsidiary would be exempt from US tax. This discussion are linked to the Advisory Panel on Federal Tax Reform recommendations released on 1 November 2005.

A recent paper by Lawrence Lokken "Territorial Taxation: Why Some U.S. Multinationals May Be Less Than Enthusiastic About the Idea (and Some Ideas They Really Dislike)" is a very interesting reading because it provokes a discussion on the current state-of-play of comparing the complex and intricate US credit system with an exemption system. This paper by Prof. Lokken (from whom I learned in Leiden the few things I know about US International Taxation) proposes very practical and plausible adjustments to the current credit system that could perhaps remove some of the existing problems and therefore pose an alternative to maintain a credit system.

But let's assume that the wind changes and the US would go ahead and move towards an exemption system. This move would likely affect or even accelerate a similar shift by other credit countries in Europe, such as the United Kingdom. One thing is granted and that is that the debate on credit/exemption has re-started. Other considerations in Europe are also placing the credit system under close scrutiny. For example, a recent opinion by the ECJ Advocate General suggested that the failure by the UK to extend tax exemption to dividends received by a UK company from a company in another EU Member State would be possibly contrary to EU law. This seems to suggest that only an exemption system of double tax relief may ultimately prove compatible with the EC Treaty. But that is another (long) story with strong crosswinds!

(1) For the ones intersted, I recall reading a UK consultation paper back in 1999 that served as a starting point for a discussion on the policy issues underpinning the systems of double taxation relief. A good reading with somewhat narrow conclusions.

Beneficial owner what?

The concept of beneficial owner has never been clear. Long debates about the use of SPVs, some landmark cases, and a sort of tolerance, particularly in the financial sector. Something similar to the Dutch approach to coffee shops, where youngsters (and non-youngsters) get stoned before biking back home in the bike lanes and upsetting the local Dutch crowd. SPVs in the financial industry can be compared to coffee shops in the Netherlands, they are tolerated.

No one really even thought about this, it was simply something taken for granted (with more or less dubious moral/economic justification, which is: it makes cost of funding lower and therefore positive for the economy).

Then came the day that a multinational (which needed some cash) and the investment bank (which structured the deal) started quarrelling about their contract. They started arguing so vehemently that they ended up in Court!

The issue to be decided by the UK judge, competent on the basis of the agreement the two parties had signed few years before over a bottle of champagne, was the following:

(i) our contracts say that Indofood can pull out of the agreement if the 10% withholding tax levied on the interest paid to the special purpose vehicles (SPV) set up in Mauritius to get money from the market is no longer available and ‘no reasonable measure can be taken’ to reinstate the same conditions;
(ii) Indonesia, which is sick and tired of seeing Mauritius as one of its biggest inbound investors (not they do not like particularly Mauritius, but rather they only see Mauritius companies), decides to terminate the treaty;
(iii) As consequence, Indofood would have to pay 20% withholding tax;
(iv) It is not a reasonable measure to interpose another SPV in the Netherlands (by the way, a 0% withholding tax under the Dutch-Indonesia tax treaty could have been available);
(v) Why? Because the Dutch SPV is not the beneficial owner, no reasonable measure would be then available and therefore no contract (and I would stop paying this damned high interest rates, since the interest rates had gone down meanwhile).

The UK Court of Appeals looked at the treaty, at the OECD Commentary, at Prof. Philip Baker book on Double Tax Convention and said: forget about it. The Dutch SPV is not the beneficial owner. Why? Because it has no power over the interest it gets from Indofood, it simply has to pay everything to the bond holders.

This created a small tsunami in the London financial world. Advisors, lawyers, accountants, bankers, and the other guys that move the world (by the way, is it the right direction?) started wondering What? And so what about this structure, and what about this deal? And think about that? Investment funds, hedge funds, mezzanine funds, etc... It's gonna be a mess.

Back in HMRC headquarters they were simply flabbergasted. They had a weapon of mass destruction in their hands without having the trouble of litigating the issue themselves. Simply for free and even served on a silver plate.

What would you do?

Lawyers start going around saying that instability and uncertainly is the last thing the market needs, big deals are going on right now and we can’t mess everything up because of a provision that has been there for ages.

Calm down because the HRMC is gonna issue guidance to clarify everything. Let's see some pieces of that guidance:

“the decision is also likely to be of persuasive force where related issues for UK DTCs are being considered and that, where it is relevant, HMRC is obliged to follow it. Since the Court of Appeal decision is fully consistent with the UK’s existing policy HMRC does not think that, in general, the case will have a significant impact on its current practice”.

In other words, do not worry. But remember, every time they tell you do not worry, start worrying (carrot and stick approach). And here it comes:

“It is HMRC policy that, where there is treaty abuse (such as, say, “treaty shopping”), interpreting “beneficial ownership” in what the Court of Appeal called its “narrow technical” UK domestic law meaning would not give effect to the purpose and object of the DTC. It would be contrary to the object of the DTC to allow such treaty abuse. On the other hand, interpreting “beneficial ownership” in what the Court of Appeal called its “international fiscal meaning” clearly gives effect to the purpose and object of the DTC by excluding abusive cases such as “treaty shopping” from the benefits of a DTC”.

By the way, what is the UK narrow technical sense? Is it any different from the international law meaning, i.e, the meaning the context requires (by the way, is tax avoidance against the object and purpose of the treaty?). Forget about this theoretical issue for now and let's look at real life situations.

But then the carrots come:

"HMRC will also accept that there is no need to invoke the “international fiscal meaning” of beneficial ownership to deny treaty benefits where the lender receiving income directly from the SPV (the “true” beneficial owner of the interest) would, if they had been the direct recipient of the interest, have been entitled to treaty benefits as a resident of a state with which the UK has a DTC with zero withholding on interest.
HMRC will therefore accept that there is no need to invoke the “international fiscal meaning” of beneficial ownership to deny treaty benefits where the bond issued by the non-resident SPV is a Eurobond as defined in s349(4) ICTA 1988."

So far, so good. Nothing new. But the stick is ready to be used. Look at this example:

"A claim is made under the UK/Luxembourg DTA for relief from UK withholding tax in respect of a loan from a Luxembourg resident company (LuxCo) to a UK group borrower.
• LuxCo was set up (or has been maintained in the group) specifically to deal with this intra group loan and is taxed on a small “turn” for administering loans;
• the source of the loan is an affiliate in a territory with which the UK has no DTA (NoA Co)
• the NoA Co/LuxCo loan agreement shows that this interest bearing loan was predetermined to be onlent to the UK
• similarly, the interest payable by the UK on its loan from LuxCo is predetermined to be passed on to NoA Co.
The conduit company is not beneficial owner of the relevant income within the “international fiscal meaning”, because it has clear obligations to forward the interest to NoA Co. The terms and conditions of the loan agreements show that the flow of income out of the UK is predestined to be passed on to NoA Co. It is clear that one of the main purposes of the Luxembourg company is to avoid the withholding tax which would be due on payments of interest to NoA Co. The interest will not benefit from the Luxembourg/UK treaty and tax will be withheld".

In the end, if you do this from the US, no problem. There would be no withholding tax under the treaty anyway, so why bother. What about all the other cases?

It is circulating these days a memo from the London firms claiming this is not fair play, both on legal and moral grounds. They attack a draft they received in confidence from HRMC and discussed during a meeting they had. Critics are based on arguments such as foreign funds do not pay VAT on management services rendered from the UK, that's’ why they are abroad, what about the UK borrowers that for years have been paying free of withholding tax. Why did you need to insert an LOB provision in the treaty with the US then? We had even showed you the structures and you said it was ok, now you say you did not realize there was a back-to-back!

Beneficial owner what?

Ralph Red

UK Draft Guidance on Beneficial ownership

When I commented, back in March, on the Indofood case, I was sure that a lot of water would still pass below the bridge construed by the controversial decision of the UK Court of Appeals. Some of this "water" has now came out into public, just two days ago, with the release of Draft Guidance on the UK Tax Authorities interpretation of the Indofood decision. This guidance was expected, based on the fact that the case has now became English Law, and is designed to cover the majority of situations where the controversial decision could give rise to uncertainty (e.g. every-day capital market transactions involving Special Purpose Vehicles). For me, I will read carefully the draft guidance (hopefully with critical eyes) and see what changes in the obscure world of (lack of) of beneficial ownership for tax purposes!

Index on European tax law research (revised version)

European tax law has immense research opportunities. As Professor Pistone said recently “European tax law is picking up” and therefore keeping up to date with this new promising tax area is a challenge even for the so-called EU specialist. This overview is designed to be a short index on EC Tax Law information available through various websites of the European Union's institutions and specialized agencies in Europe and provide you a useful tool to navigate in the cyberspace in a time effective manner.

Brief Historical background (with links)

Although there is no explicit provision in the EC Treaty for the harmonisation of direct taxes, EU actions on the filed of tax have been generally based on Art. 94, which authorises "directives for the approximation of such laws, regulations or administrative provisions of Member States as directly affect the establishment or functioning of the common market".

The concrete proposals for harmonisation of corporation tax started off with the Neumark Report of 1962 and the van den Tempel Report of 1970. In 1975, an unsuccessful draft Directive proposed an alignment of rates between 45% and 55% and by 1980 a Report on the Scope for Convergence of Tax Systems by Commission was already arguing that a different approach.

The 1990 Commission report Guidelines for Company Taxation explained how the Commission decided to focus on rather targeted measures essential for completing the Single Market. As such three proposals received the approval, namely the merger directive, the parent-subsidiary directive and the arbitration procedure Convention. In a special issue of the Official Journal, the commission published the report “Removal of Tax Obstacles to the Cross-frontier Activities of Companies” (Scrivener Report), were the Commission explained the measures and presented two additional proposals regarding: losses of permanent establishments and subsidiaries situated in other Member States and a common system for interest and royalty payments.

In 1992, the Ruding Committee reported on the Community aspects of company taxation and concluded that, although there has been some degree of fiscal convergence, wide differences, remain, which could affect or distort the single market. The Committee proposed a minimum degree of harmonization and gave 21 recommendations covering three categories: elimination of double taxation of cross-border income flows, harmonization of corporation taxes, and greater transparency between Member States on other issues. The Commission reacted by not agreeing with most off the proposals (namely the corporate tax harmonization) and focus again its attention on enlarging the scope of the merger and parent/subsidiaries Directives and bringing into light the interest & royalty Directive.

A 1996 paper on "Taxation in the European Union" outlined the main challenges for taxation policy in the Union and on 1997, the Ecofin Council reached agreement on a package of proposals designed to tackle harmful tax competition. In 1999, the Code of Conduct group on business taxation (established further to the ECOFIN conclusions of 1997) submitted its final assessment report, made public in 2000. In 2003, the interest and royalty directive went ahead. The savings Directive (ensuring a minimum of effective taxation of savings income in the form of interest payments) also was finalised. another major development was the 2004 EU Savings agreement between the European Union and Switzerland, which provides for the application of the Interest and Royalties Directive and the Parent-Subsidiary Directive in the relation between the European Union and Switzerland.

As a result, of the 2001 Commission Study, Company Taxation in the Internal Market and accompanying Communication, a long term strategy was mentioned for providing companies with a consolidated corporate tax base for their EU-wide activities. This project is advancing and several reports have been in the meantime made available. Another recent development was based on the work of the EU Joint Transfer Pricing Forum, which resulted Code of Conduct on transfer pricing documentation for associated enterprises in the European Union and the Code of Conduct for the effective implementation of the Arbitration Convention

It should be noted that although network of bilateral tax treaties still lie outside the framework of Community law, the Commission is considering the possible conflicts between the EC Treaty and the bilateral double taxation treaties that Member States have concluded with each other and with third countries.

In addition to the policy and legislative developments highlighted above, the development of European tax law has a very important judicial component since the European Court of Justice has been archiving harmonisation through the application of the non-discriminatory principles of the four fundamental freedoms. This effect is evident in the Court Cases in the field of Direct Taxation since the Avoir Fiscal (1986) to the more recent N case (2006).

General Information Links

EU Legislation on Taxation (as of 1.9.2005)
- This very useful document links you to all the legislation in force in the European union in the area of taxation

Direct Taxation Directives
- This document links you to the Direct Taxation Directives: namely the Merger, Parent-subsidiary, Interest and Royalties and Savings Directives.

Indirect Taxation Directives
- This document links you to the several Indirect Taxation Directives, with a particular reference to the Sixth Directive on VAT.

Company Law Directives
- This document links you to the several Company Law Directives currently in place

Treaty establishing the European Community
- This document contains the consolidated version of the Treaty of Rome.

Other Treaties or basic legal texts of the European Union
- This document contains links to remaining treaty texts.

Specific Links of Interest

Taxation and Customs Website

Commission Staff Working Paper - Company Taxation in the Internal Market - SEC(2001) 1681 An Internal Market without company tax obstacles: achievements, ongoing initiatives and remaining challenges - COM (2003) 726

Dividend taxation of individuals in the Internal Market - COM (2003) 810

Code of Conduct on Business Taxation (Primarolo report)

OECD Harmful Tax Practices report (1998) and the 2004 Progress Report DG Competition website (in-charge for State Aid procedure)

Report on the application of the state aid rules to measures relating to direct business taxation (2004)

State Aid Register - Commission Decisions

Court Cases in the field of Direct Taxation (updated as September 2005)

Search form for Judgments, Opinions and orders of the European Court of Justice

Case-law by numerical access from (i) 1953 to 1988 and (ii) since 1989

Daily Official Journal of the European Union

ECOFIN - Economic and Financial Affairs

Latest press releases from EU EU Member States Links

Keeping up to date with the news

Financial Times - Brussels briefing

PwC EU direct tax newsalerts

E&Y EU Tax Library

KPMG European Tax Centre

Loyens & Loeff EU tax alert

Baker & McKenzie European Tax Newsletter

Reference Books (Recent publications)

§ Ben Terra & Peter Wattel, European Tax Law; 4rd edition 2004, Kluwer Law international
§ Paul Farmer and Richard Lyal, EC Tax Law, 2nd edition, Oxford, To be Published: April 2006
§ Carlo Pinto, Tax Competition and EU Law (Eucotax), Kluwer Law International, 2003
§ Pasquale Pistone, The Impact of Community Law on Tax Treaties: Issues and Solutions (Eucotax Series), (Eucotax), Kluwer Law International, 2002
§ Servaas van Thiel, Free Movement of Persons and Income Tax Law: The European Court in Search of Principles, IBFD Doctoral Series, 2002

Relevant Tax Journals

European Taxation & VAT Monitor (IBFD)
Intertax & EC Tax Review (Kluwer)
Tax Planning International European Union Focus (BNA)
EC Tax Journal (Key Haven Publications)
British Tax Review (Sweet & Maxwell)

Do not "check the insides of the box" because it is a disregarded entity

The US Check-the-Box regulations have through the years acquired international visibility. Basically, these regulations, which are in place since 1997, serve to determine the classification of business entities (both domestic and foreign) as a corporation, partnership or disregarded entity. Under those regulations an unincorporated entity may elect (by "checking" a box on a form) the classification it wishes and that is where the name check-the-box comes from! If no election is made, the entity is classified as a corporation or partnership (or branch) according to default rules, which are basically based on the liability of and number of the members. In addition, no election can be made where an entity is deemed to be a per se corporation.

A lot has been written on the impact of these rules both from a domestic and international perspective. Recently Alice G. Abreu (Temple University) made available a paper suggestively called “Paradise Kept: A Rule-Based Approach to the Analysis of Transactions Involving Disregarded Entities”

Taking into account the recent trend in some European countries to provide some sort of check-the-box rules, perhaps this reading will bring some insights into the “unknown” world of disregarded entities.

The attribution of profits to permanent establishments during the 2006 IFA Congress

The International Fiscal Association (IFA) held its 60th Congress in Amsterdam, the Netherlands from 17 to 22 September 2006. Following the tradition of past congresses, the IFA delegates debated two main topics, namely, the tax consequences of restructuring of indebtedness (subject I) and the attribution of profits to permanent establishments (subject II).

The two main subjects were complemented by seven specific seminars covering the following topics:
- Seminar A: Indirect tax aspects of cross-border services
- Seminar B: IFA/OECD – Do enterprises mean business?
- Seminar C: International cooperation in countering tax avoidance
- Seminar D: The effect of regional and global trade agreements on domestic tax law and bilateral tax conventions
- Seminar E: Recent developments in international tax
- Seminar F: IFA/EU: the need and scope for coordination of tax policies in the EU
- Seminar G: Tax accounting versus commercial accounting

Although it was the second main issue, the attribution of profits to a permanent establishment (PE) attracted large attention from both practitioners and academics. It is important to recall that permanent establishments were already the main topic of discussion in Vienna (1957), Stockholm (1967), Lausanne (1973) and more recently Geneva (1996).

The topic recently gained new interest with the recent OECD Discussion Drafts on the Attribution of Profits to Permanent Establishments: Part I: General Considerations (2001 and 2004); Part II: Banks (2001 and 2003); Part III (Enterprises Carrying on Global Trading of Financial Instruments) (2003); and Part IV (Insurance) (2005).

Taking into account the ongoing OECD work on this topic, now nearly approaching its completion, the first panel discussion, following the general report and the accompanying IFA branch reports, was aimed at analysing the main problem areas arising from the adoption of the so-called authorised OECD approach (AOA) to the attribution of profits to PEs. The Panel discussion also involved implementation issues and difficulties for particular countries (such as non-OECD members) in adopting the AOA.

The plenary session was complemented with a two break-out sessions specifically covering issues for financial institutions and non-discrimination issues from both the perspective of EC law and tax treaties.

General issues on the attribution of Profits to PEs (2)

The discussion of this topic took place at an important point in time, since the six-year OECD work on this same topic is now closely approaching its completion (3)

The Chair, Prof. Kees van Raad, initiated the plenary session by introducing the subject matter, namely the interpretation and application of Art. 7(1) to (4) of the OECD Model Tax Convention (the business profits provision). After briefly describing the introductory example, where an enterprise carried on by a resident of one state is operated in a host state through a PE, Prof. van Raad briefly outlined the current rules for taxing business profits under the OECD Model. This introduction was followed by an overview given Raffaele Russo on the history of the business profits provision, from the 1927 and 1928 Drafts of the League of Nations until the current 2005 OECD Model and Commentary on Art. 7.

Prof. Richard Vann discussed the current views on Art. 7. In this respect, Prof. Vann identified the two different interpretations of Art. 7(1) to (3), namely the relevant business activity approach (also called single enterprise approach) and the functionally separate enterprise approach (also called the separate enterprise approach). Prof. Vann also addressed the various approaches to the conceptualisations of the separate enterprise and focused on the potential conflict between the fiscal fiction (under which the PE is treated as a separate enterprise) and the legal facts (according to which a PE cannot own assets or bear risk separately from the remainder of the enterprise), when characterizing the so-called internal dealings.

Prof. Philip Baker (IFA General Reporter on subject II) presented the main issues and conclusions of the General Report. Prof. Baker started by highlighting that domestic law and treaty law are either largely in conformity, but that no consensus was found as to the correct interpretation of Art. 7. According to Prof. Baker, this lack of consensus is further emphasized by the absence of guidance, and also by the abundance of disputes and attribution theories in the countries surveyed. Prof. Baker also called upon the attention to the widespread use of presumptive taxation and discussed whether the attribution of profits to branches can be said to be entirely an issue for financial institutions.

The panel discussion continued with the presentation of the main issues, stemming from the future adoption Authorized OECD Approach (AOA). This was followed by an overview given by Mary Bennett of the ongoing OECD PE profit attribution project. Mary Bennett started by mentioning that the aim of the OECD project was in fact to seek to eliminate the current lack of consensus on how to hypothesize the PE as a distinct and separate enterprise, and to apply the Transfer Pricing Guidelines by analogy. Mary Bennett went on to briefly describe the AOA two-step approach and focused her additional remarks on the first step, which involves applying principles of the 1995 transfer pricing guidelines by analogy to perform a factual and functional analysis in order to analyse what is part of the PE and what is not. Mary Bennett mentioned that the first step involves addressing the question of economic ownership of assets, attributing adequate free capital to the PE in light of its risks, and attempting to identify any "dealings" between the PE and the enterprise of which it is a part. Mary Bennett explained that under the AOA risks should follow functions, the attribution of assets should follow where the people functions are performed and finally the attribution of capital should follow risks.

As regards the current state of play of the AOA, Mary Bennett announced that the OECD/CFA decided in June 2006 to publish by the end of 2006 new versions of Parts I – III of the Discussion Drafts, to finalize the Part IV draft report on insurance during the first months of 2007 and to publish during 2007 a draft implementation package, which will include the changes to the Model and Commentary. Mary Bennett also mentioned that the controversial key entrepreneurial risk-taking (functions) terminology would be retained only for specific sectors and no longer would appear in the general part. In addition, Mary Bennett stated that the symmetrical application of profit attribution methods was considered to be an issue more related to Art. 23, and that the proposed changes to the text of Art. 7 would not address the concept of symmetry.

The panel discussion continued with the presentation of five examples, which involved (i) the transfer of inventory, (ii) the transfer of an asset, (iii) debt financing (including withholding tax on notional payments), (iv) self-developed intangibles, and (v) head office expenses. Under each example, the various panel members confronted the current approach and the AOA approach, and highlighted specific issues that need to be resolved or clarified.

Following the discussion of the examples, Radhakishan Rawal addressed the extent the AOA is consistent with the UN Model Convention (2001), and whether it could be adopted by jurisdictions that follow the UN Model. Taking into account the wording of Art. 7(3), Radhakishan Rawal considered that it would not be possible to adopt AOA for treaties based on the UN Model and that such adoption would be possible only if Art. 7 of such treaties would be amended.

Meinhard Remberg presented the position of the business community on the AOA, with particular comments concerning the activities of engineering and construction companies. Meinhard Remberg noted that the integration of activities gives rise to differences regarding construction and engineering activities, and that such difference should be considered by the OECD on the preparation of Part I of the OECD PE project.

The panel continued with a discussion on the specific issue of the attribution of profits where there is an Agency PE, namely whether there may be an additional profit attributable to an Agency PE over and above the arm's length reward paid to the agent. After Prof. Van Raad outlined the issue in question, Prof. Baker highlighted several arguments in favour of the nil sum approach, while Prof. Vann exposed opposing arguments for determining a taxable profit at the level of the Agency PE. The discussion was followed by a vote by the delegates.

The final topic addressed future policy and implementation options arising from an adoption of the AOA by OECD Member States. The panellists discussed the advantages and disadvantages of adopting the AOA for all businesses, adopting the AOA only for the financial sector, not adopting the AOA but maintaining the existing wording of Art. 7 and Commentary, and finally deferred a decision and continue researching alternative solutions. As regards implementation options, the panellists discussed the advantages and disadvantages of changing only the OECD Commentary versus changing the OECD Model and Commentary.

Selected issues for financial institutions (4)

The financial industry, which usually operates through branches, is in the forefront of the debate as to how profits are attributable to a PE and the first break-out session focused on the key practical issues in determining how profits are attributed under the AOA.

The Chair, Dr Richard Collier initiated the break-out session by outlining the specific issues related to attribution of profits to PEs in the financial sector, namely key entrepreneurial risk-taking (functions), capital allocation and symmetry issues, specific issues of the insurance sector and Agency PE considerations.

Before addressing the specific issues, Angelo Digeronimo outlined the historical issues that serve as a background to the ongoing OECD work. Angelo Digeronimo started by mentioning the 1994 OECD report on the attribution income to PEs and its aim to remove uncertainty about the interpretation of Art. 7 of the OECD Model and also remove all differences between Art. 7 and Art. 9 of the OECD Model. However, due to the conservative majority opinion at that time, the report failed to address any differences between Art. 7(2) and 7(3). Although the ban on notional payments between the head office and branch was maintained, Angelo Digeronimo mentioned that the report had its merits. In addition, Angelo Digeronimo mentioned the external and internal drivers to the current OECD work, such as the adoption of the 1995 Transfer Pricing Guidelines and the OECD work on global trading. On this subject, Dr. Collier pointed out that there has been notably little controversy in the approach to the allocation of profits to financial PEs, largely due to the influential 1984 Guidance from the OECD.

Jean-Charles Balat addressed the topic of Key Entrepreneurial Risk Taking (KERT) functions in the framework of the financial industry. Jean-Charles Balat noted that KERT approach can be seen as a concrete application of the functional analysis and that such approach is positive, taking into account the goal of attributing profits to where the key profit drivers are located. Jean-Charles Balat also listed the various practical and theoretical remarks on the KERT concept and highlighted potential compliance issues for taxpayers. Jean-Charles Balat concluded that although it can be said that the KERT approach is too theoretical and has to become more flexible, it can be said that it generally improves the application of the profit split.

Peter Van Dijk commented on the KERT concept from the insurance industry perspective, where risk management is generally the key profit driver. Peter Van Dijk started by welcoming the initiative of the OECD on the attribution of profits to PEs but expressed that in a regulated industry, such as the insurance industry, it may raise more problems than solve the existing ones. Peter Van Dijk also mentioned that there is an uncertainty of what KERT means (for example for underwriting and general management functions) in the insurance business and that may probably give rise to double taxation.

Bas De Mik provided an overview of the issues of capital attribution arising from the AOA and the related issue of symmetry in the capital allocation method used by the residence state. On this topic, David Grecian highlighted that the CFA recently decided to remove the symmetry issue from the draft reports, although there is an agreement as to the inclusion of a policy statement in the draft implementation package, which will include the changes to the Model and the OECD Commentary.

Angelo Digeronimo commented on the status and major points of the draft report on insurance (Part IV) and mentioned that a public release is expected during the beginning of 2007. Peter Van Dijk commented on the specific problems arising from the insurance sector that need to be addressed in the forthcoming draft report.

The break-out session also addressed specific issues concerning Agency PE in the framework of the financial sector. Richard Collier, after providing an overview of the issues, questioned whether the KERT approach, which s focused on Art. 7(2), has an indicative or determinative influence when considering the existence of an Agency PE under Art. 5(5). On this issue, David Grecian started by describing the OECD approach on Agency PE under the AOA and highlighted that the AOA does not make any distinction between different types of PE. David Grecian mentioned that although the OECD did not originally see the Agency PE considerations as a controversial issue, it has became one of the more controversial issues of the AOA. In that regard, David Grecian outlined some of the concerns raised by the business sector and highlighted the importance of the principle that an Agency PE can receive an arm's length reward above the remuneration paid to the dependent agent. Finally, David Grecian concluded that KERT approach hypothesizes the PE and serves to allocate the financial assets and its attached risks to identify a PE, and that such analysis is different than the set of tests under Art. 5(5) and (6). Bas De Mik suggested that the are two hurdles to overcome regarding the Agency PE. The first is the text of Art. 5(5) and the second is the lack of symmetry on capital attribution.

As a conclusion, each of the panel members offered a final comment on important issues coming out of this session. Peter Van Dijk started by mentioning that as long as PEs are not treated as subsidiaries the problems will continue and therefore recommended further study of the issue. David Grecian, considered that the OECD project brought the treatment of the PEs further and will help to achieve greater consistency between the approaches currently in place in the OECD member countries. Anuschka Bakker noted that the regulatory issues of the insurance industry should be further addressed. Richard Collier stressed that further work should be done on Art. 5(5), as a financial sector imperative. Angelo Digeronimo mentioned that the implementation of the AOA introduces the functional analysis, and that with the AOA, we are moving closer to not having differences between Art. 7 and Art. 9. Bas De Mik highlighted symmetry as an important point to reach a solution. Finally, Jean-Charles Balat suggested that the OECD changes the text of Art. 7, so that Anglo-Saxon countries give up the practice of non-recognition of intra-group branch transactions.

EC law and non-discrimination issues(5)

Since most tax treaties contain a non-discrimination article, it is important that any approach to the attribution of profits to PEs is consistent both with the provisions of the Art. 24(3) and its Commentary.

In addition, the current member states of the EU are also subject to the constraints of Community law, which may also impact their position on the attribution of profits to PEs. In fact, although several decisions of the European Court of Justice (ECJ) have dealt already with the taxation of PEs, several EC law aspects still need to be resolved, such as exit taxes, notional income and capital allocation. In that regard, the second break-out session discussed in detail the non-discrimination implications of the OECD Discussion Drafts on the attribution of profits to a PE.

The Chair, Prof. Lang, initiated the session by introducing the subject matter, i.e. non-discrimination issues in respect of the proposed authorized OECD Approach (AOA) arising from the EU fundamental freedoms and Art. 24 of the OECD Model. The session covered five case studies, concerning a head office in State A with a PE in State B.

The first case study dealt with the issues of transfer of assets from the head office to the PE and issues of exit taxation. Prof. Kroppen outlined the main facts and issues, i.e. whether or not the resident state is allowed to tax the transfer of assets from a head office to a PE and whether or not the source state is required to provide a step-up in value when the assets are transferred to the source state.

Prof. Pistone started by exploring the fundamental freedoms, relevant for direct taxation purposes and the four steps that the ECJ uses when applying them to judicial cases. Starting from the state of residence, Prof. Pistone analysed which fundamental freedoms would apply (the freedom of establishment or the free movement of capital) and whether or not that would raise any difference, such as in situations involving third countries. With regard to the correct comparison to determine whether or not discrimination exists, Prof. Pistone submitted the scenario of a head office and a PE in the state of residence. Assuming a difference in treatment exists, Prof. Pistone addressed possible justifications, i.e. territoriality and internal market tax cohesion. From the perspective of the state of source, Prof. Pistone referred to the conclusions of the ECJ in the "N" case (C-470/04) and stated that it may be relevant to determine if the state of source also grants a step-up for EU resident subsidiaries or takes into account if the source state taxes (with deferral) outgoing transfers.

Prof. Gutmann raised additional questions as to whether or not there is a problem under EC law. In doing so, Prof. Gutmann first questioned, from the perspective of the state of residence, if a transfer of assets would be covered by the freedom of establishment. Second, Prof. Gutmann questioned if there would be discrimination, as it is not clear if the residence state has to treat the foreign PE as a foreign subsidiary. Prof. Gutmann also discussed whether or not the EC law solution depends on the features of the domestic tax system of the resident state, e.g. the territorial system. With regard to the state of source, Prof. Gutmann remarked that if no step-up is given in a situation of a domestic head office and PE, why would it be required to do so in this case? Prof. Kroppen drew attention to an ongoing discussion in Germany as to whether or not a discrimination and/or infringement can be justified on the grounds that the EU systems for exchange of information do not work in practice.

Prof. Lang addressed tax treaty law issues by determining the right term of comparison under Art. 24 (3). Taking into account that a step-up in the PE state could raise a double deduction issue, Prof. Lang said that such double dips would not, in principle, be a problem, as Art. 24 only deals with the state of source. Prof. Garcia Pratz also defended the position that there is no problem for the residence state. With regard to the state of source, Prof. Garcia Pratz said that, depending on the comparable enterprise treatment, Art. 24(3) could be said to force (under the traditional and AOA approach) this state to give a step-up to PE in order to avoid discrimination treatment.

The second case study dealt with a scenario involving a notional royalty income from a PE to the head office. Prof. Pistone outlined the main facts and issues, i.e. whether or not a notional royalty payment should be deductible in the source state, what is the right comparison and whether or not a withholding tax levied only at the level of a subsidiary affects the outcome of the case.

Prof. Garcia Pratz, who dealt with the source state EC law issues, said that this case would fall under freedom of establishment. As to the right comparison, and as ECJ case law offers many valid possibilities, it could be possible to compare the present case with the situation of a parent company in the residence state and a subsidiary in the source state. Nevertheless, Prof. Garcia Pratz pointed out that it is important to determine if the notional payment and the real payment would be in a comparable situation. With regard to a possible justification to non-deductibility, Prof. Garcia Pratz stated that, following ECJ case law, the compensation with other advantages, such as the withholding tax levied on subsidiaries, would probably not be allowed as a justification. Prof. Lang dealt with the residence state issues and said that, if the outcome of this case would result in the residence state being precluded to tax such a notional royalty, this could again result in a double benefit. In this regard, Prof. Lang pointed out the recent tendency of the ECJ to look together at both source and residence and the use of the fundamental freedoms to a certain extent as a policy tool.

Prof. Kroppen said that, from a tax treaty law perspective, the right comparator under Art. 24(3) could be a subsidiary of the source state. Accordingly, the fact that a subsidiary would be granted a deduction, whilst no deduction would be available to a PE, amounted to a breach of Art. 24(3). Prof. Kroppen also highlighted that only under the AOA notional payments would be deductible and, therefore, a PE and subsidiary would be treated equally. David Rosenbloom, who offered the US perspective on the non-discrimination article, considered that the correct comparison under Art. 24(3) should be a standalone company and not a subsidiary. In addition, David Rosenbloom said that the concept of intra-entity notional royalty is not recognized, which makes the comparison more difficult. Finally, David Rosenbloom stated that the issue of deduction of development costs could be resolved under Art. 7 and possibly Art. 24(3).

The third case study dealt with a scenario involving a supply of services between head office and PE. Prof. Lang outlined the main facts and issues, i.e. whether or not an equal treatment of a foreign PE and a foreign subsidiary would remove possible problems under Art. 24(3) and EC law.

Prof. Kroppen, considering the residence state EC law issues, stated that the correct comparison would be with a head office and a PE in the residence state. A difference in treatment could amount to discrimination under the freedom of establishment, but in such case possible justifications would need to be evaluated. Prof. Garcia Pratz, considering the source state EC law issues, said that the correct comparison could be with a parent company in the residence state and a subsidiary in the source state. With regard to the outcome of the case, Prof. Garcia Pratz submitted that, provided that domestic law allows deduction of the expense, the current approach and the AOA would not raise EC compatibility issues.
From a tax treaty perspective, Prof. Gutmann considered that a discrimination issue can be raised under the current OECD approach, whilst under the AOA it would cease to exist. David Rosenbloom pointed out that the application of the US transfer pricing rules would result in the arm's length remuneration most likely being the cost for these services. David Rosenbloom stated that this case is similar to the notional royalty case, i.e. no discrimination, with the only difference that in this case there is no timing mismatch.

The fourth case study dealt with the issue of capital allocation to a PE under the AOA. Prof. Lang outlined the main facts and issues, i.e. how much capital is needed to cover the assets and support the risks assumed by the PE and how to deal with the situation when the amount of capital attributed to the PE is higher than the minimum amount attributed to a local subsidiary.

Prof. Gutmann started by pointing out that there is an EC Law issue if a PE in the source state is worse off than a domestic subsidiary. In this regard, three sub-issues need to be resolved. First, whether minimum legal capital is relevant for tax purposes in cases where the PE free capital is higher. Second, what happens in cases where no thin capitalization rule exists in the PE state or transfer pricing rules apply? Third, what happens where free capital is also required for a PE and there is a thin capitalization rule for subsidiaries? Prof Garcia Pratz, defending the point that no EC law problems are raised, stated that the correct comparability depends largely on which "capital allocation model" is followed.
Prof. Pistone, addressing the treaty law issues, said that the comparability of a PE with a subsidiary is strengthened by the AOA. Prof. Pistone also said that, in cases where thin capitalization rules do not exist, the AOA may lead to discrimination. David Rosenbloom commented from a US perspective and referred that no discriminatory treatment should be found. In this regard, David Rosenbloom offered four possible scenarios for comparison under Art. 24(3).

Finally, the fifth and last case study dealt with documentation requirements for a PE of a third country national. Prof. Gutmann outlined the main facts and issues, i.e. the application of EU freedom of capital in a scenario involving third countries instead of intra-EU, the legitimacy to impose more burdensome requirements on a PE and whether or not the assessment of procedural and substantive rules differs.

Prof. Pistone, started by determining the scope of free movement of capital and payments in relation with non-EU countries by referring to a recent ECJ Advocate General's opinion in the Fidum Finanz case. Prof. Pistone also said that, from an EU perspective, procedural obstacles are obstacles and may create EU problems. With regard to the correct comparison, Prof. Pistone referred to a head office in a third country with a profit-making PE in the source state. Prof. Pistone also pointed out that different standards for justifications and proportionality may be envisaged in third country situations. Prof. Kroppen, questioning if there is an EC law problem, said that a restriction (instead of discrimination) could be found, as such a rule could deter the formation of PEs. Since the mutual assistance directive would not apply, Prof. Kroppen discussed the issue of if there would be a practical difference under a tax treaty exchange of information clause.

David Rosenbloom questioned if Art. 24 would apply to procedural restrictions and said that the key enquiry in this case would be if the source state applied a similar rule as to where the accounting takes place as regards a resident company. Finally, Prof. Lang followed the approach that both substantive and procedural rules may affect Art. 24. With regard to the correct comparison, if the comparable situation in this case would be with an enterprise carrying out activity in the source state, Prof. Lang submitted that there would be no discrimination.

Final Comment

There have been during this past years several calls of scepticism, namely of the extension of the already complex and difficult transfer pricing rules to the situation of the branch or to an Agency PE. Critics mentioned, amongst others that the practical application of this process of applying transfer pricing rules by analogy raises a number of difficult issues, which in the end will not make life easier to taxpayers. The increased pressure in the Agency PEs side is perhaps a visible element of those difficult issues. Nevertheless, the OECD has demonstrated its resilience and (as announced during the IFA Congress) will apparently bring this project to an end by 2007/2008. The implementation package announced by the OECD, the discard of the KERT terminology (at least for general PEs) and the postponement of the debate on the symmetry issue were the most recent OECD news announced during the IFA Congress. The question remains as to whether “calm seas” lie ahead or some of the voiced concerns during the Congress will bring some "turbulence" into the project. One thing appears more certain, the attribution of profits project will set anchor in 2007 and we expect changes into the OECD Model (and not only to the Commentary).

Endnotes

(1) The IFA, which is headquartered in the Netherlands, is the leading non-governmental international organisation dealing with tax matters and comprises more than 11,000 members worldwide. The objects of IFA are the study and advancement of international and comparative tax law through specific research, holding of congresses and publications. In 2007, the Annual Congress will be held in Kyoto (Japan). For further details, visit www.ifa.nl

(2) The plenary panel was composed by Prof. Kees van Raad (Netherlands) as the chair, Prof. Philip Baker Q.C. (United Kingdom) as the General Reporter and: Mary Bennett (OECD), Radhakishan Rawal (India), Meinhard Remberg (Germany) and Prof. Richard Vann (Australia) as panel members. Raffaele Russo (Italy) served as secretary.

(3) OECD Discussion Draft on the Attribution of Profits to Permanent Establishments: Part I: General Considerations (2001 and 2004); Part II: Banks (2001 and 2003); Part III (Enterprises Carrying on Global Trading of Financial Instruments) (2003); and Part IV (Insurance) (2005).

(4) The panel of the first break-out session was composed by Dr Richard Collier (United Kingdom) as the Chair and Jean-Charles Balat (France), Bas De Mik (Netherlands), Angelo Digeronimo (Switzerland, OECD – WP6), David Grecian (OECD – WP6) and Peter Van Dijk (Canada) as members. Anuschka Bakker (Netherlands) served as secretary.

(5) The panel of the second break-out session was composed by Prof. Dr Michael Lang (Austria) as the Chair and Prof. Alfredo Garcia Pratz (Spain), Prof. Daniel Gutmann (France), Prof. Dr Heinz-Klaus Kroppen (Germany), Prof. Dr Pasquale Pistone (Italy) and David Rosenbloom (United States) as panel members. Patrick Plansky (Austria) served as secretary.

NOTE: This summary is based on a three seperate TNS reports made for the IBFD in connection with the IFA Congress