CONTENTS VOL I. Corporate & Finance. II. Litigation and Arbitration. IV. Others. III. Tax

Transcription

1 VOL

2 CONTENTS I. Corporate & Finance 1. International Transactions Phillips Nizer LLP Kreditsicherung durch bewegliches Eigentum im U.S. Recht...3 Sidney N. Weiss Cloud Computing & Export Control Compliance...6 Chadbourne & Parke LLP Chinese Outbound M&A in Germany...8 II. Litigation and Arbitration 2. Litigation v.einem & Partner German Federal Constitutional Court on the Service of Statements of Claim Nietzer & Häusler US-Produkthaftung: Herstellerrisiko Post-sale Duty to Warn, Retrofit or Recall Commercial Litigation Noerr LLP Are you sure you know where you going to sue or be sued? New Limits to Choice of Law and Choice of Venue Clauses in Cross-Border Agreements III. Tax 1. International Tax ParenteBeard LLC Intercompany loans A focus on three rules you should keep in mind Rödl & Partner FATCA: It s not just for Financial Institutions State and Local Tax Deloitte Tax LLP U.S. Senate approves online state sales tax legislation WeiserMazars LLP Income Tax Nexus is a Tempting Way to Fill State Coffers Others AugustinPartners LLC Foreign Investment in Real Property Tax Act Withholding Certificate Applications for Reduced Withholding and New York State Estimated Tax Requirements Others Excise Tax Hodgson Russ LLP Medical Device Excise Tax Liability of Foreign Manufacturers Selling into the United States...27 IV. Others 1. Privacy Law Gibbons P.C. Monitoring of Employee Computer & Usage under U.S. Law...29

3 Kreditsicherung durch bewegliches Eigentum im U.S. Recht Steven H. Thal International Counsel T +1 (212) U.S. Mobile: +1 (917) International Mobile: +49 (172) sthal@phillipsnizer.com I. Einführung Täglich werden im Geschäftsverkehr Kredite vergeben und Waren wechseln ihren Besitzer, ohne vollständig bezahlt worden zu sein. Häufig werden dann US-Anwälte gebeten, solche Kredite in den USA durch Sicherungsübereignungen abzusichern, oder bei derlei Warenverkäufen vertraglich Eigentumsvorbehalte zu vereinbaren. Das deutsche Sicherungseigentum ist in den USA jedoch unbekannt. Ein Käufer erwirbt hier uneingeschränktes Eigentum. Das dem deutschen Recht eigene Prinzip der Trennung zwischen dem schuldrechtlichen Kaufvertrag und dem dinglichen Verfügungsgeschäft der Eigentumsübertragung gilt im U.S. Recht nicht in der gleichen Form. An Stelle des Sicherungseigentums sieht der Uniform Commercial Code ( UCC ) Sicherungsrechte an verkauften Waren bzw. an anderen beweglichen Gütern des Schuldners vor, die zwar in einigen Eigenschaften mit dem Sicherungseigentum vergleichbar sind, jedoch andererseits mangels Eigentums des Gläubigers mehr einem deutschen Pfandrecht ähneln. Florian von Eyb, LL.M. Attorney at Law in New York Rechtsanwalt (admitted in Germany) T +1 (212) fvoneyb@phillipsnizer.com Phillips Nizer LLP 666 Fifth Avenue New York, NY F +1 (212) II. Die Entstehung des UCC und die Bedeutung des Artikel 9 Jeder Staat in den USA hat sein eigenes Handelsrecht. Das UCC wurde jedoch von fast allen Staaten weitgehend unverändert umgesetzt. Artikel 9 UCC regelt das Kreditsicherungsrecht für Mobiliarsachen. Ein Sicherungsrecht nach Artikel 9 UCC weist sowohl zum Sicherungseigentum, als auch zum Pfandrecht Ähnlichkeiten und Unterschiede auf. Ein entscheidender Unterschied zum Pfandrecht liegt darin, dass es wie das deutsche Sicherungseigentum weder unmittelbaren, noch mittelbaren Besitz des Sicherungsnehmers erfordert. Ein weiterer wichtiger und vorteilhafter Unterschied zu beiden deutschen Typen besteht in der öffentlichen Eintragung vieler Sicherungsrechte durch ein sogenanntes UCC-1 Financing Statement (nachfolgend UCC-1 Formular ). Die Einreichung ( filing ) des UCC-1 Formulars ist fast mit einer Grundbucheintragung (z.b. einer Hypothek) in Deutschland vergleichbar. Sie ersetzt das Besitzerfordernis. Die Eintragungen kann jedermann zumeist kostenlos durch eine einfache und schnelle Nachsuche ( UCC-Search ) im Online-Register des Department of State des Wohnsitzstaats des jeweiligen Schuldners einsehen. III. Entstehung eines Pfandrechts Attachment Ein Pfandrecht entsteht durch (1) Einigung der Parteien, (2) Leistung des Sicherungsnehmers an den Sicherungsgeber, gewöhnlich des Kredites oder des Kaufgegenstandes und (3) Verfügungsberechtigung des Sicherungsgebers. 3

4 Steven H. Thal International Counsel T +1 (212) U.S. Mobile: +1 (917) International Mobile: +49 (172) sthal@phillipsnizer.com Florian von Eyb, LL.M. Attorney at Law in New York Rechtsanwalt (admitted in Germany) T +1 (212) fvoneyb@phillipsnizer.com Phillips Nizer LLP 666 Fifth Avenue New York, NY F +1 (212) Kreditsicherung durch bewegliches Eigentum im U.S. Recht IV. Perfection Wirksamkeit gegenüber Dritten Um ein anhängiges Recht auch gegenüber Drittgläubigern mit Sicherungsrechten an demselben Gegenstand durchsetzen und den Rang wahren zu können, muss das Sicherungsrecht noch perfected werden, was u.a. eine Art der öffentlichen Bekanntmachung bedeutet. Es gibt verschiedene Möglichkeiten, die so genannte Perfection durchzuführen. (1) Die gängigste Methode der Perfection ist die Einreichung eines UCC- 1 Formulars. Grundsätzlich erfolgt dies in dem Staat, in dem sich der Hauptwohnsitz des Schuldners befindet, zumeist zentral beim Department of State. In dem UCC-1 Formular muss das Sicherungsgut allgemein beschrieben werden. (2) Keinerlei Eintragung ist notwendig, wenn der Sicherungsnehmer den Pfandgegenstand in Besitz nimmt. (3) Ein Sicherungsrecht an Anlagevermögen wird durch Kontrolle perfected. (4) Hat der Sicherungsnehmer ein Pfandrecht an einem Kaufgegenstand, den er verkauft oder dessen Kauf von einem Dritten er für den Käufer finanziert hat ( Purchase Money Security Interest, nachfolgend PMSI ) und handelt es sich dabei um ein Verbrauchsgut, Forderungen oder einen Wechsel, so gilt das Sicherungsrecht im Zeitpunkt des Attachments (siehe III) automatisch als perfected. (5) Ein Sicherungsrecht setzt sich automatisch an dem Erlös ( proceeds ) und Ersatz von Sicherungsgut fort. In der Praxis raten wir Sicherungsnehmern immer, ihre Rechte durch filing eines UCC-1 Formulars anzumelden. V. After-acquired Property und Future Credits Eine Sicherungsvereinbarung kann sich mit einigen Ausnahmen auch auf Gegenstände typischer Weise Waren erstrecken, an denen der Schuldner erst zukünftig Rechte erlangt ( after-acquired property ). VI. Vorrangregeln First to attach und First to file Streiten sich zwei Gläubiger, von denen keiner die Perfection durchgeführt hat, so hat derjenige Vorrang, dessen Pfandrecht zuerst durch Attachment entstanden ist. Wenn beide Konkurrenten perfected haben, hat derjenige Gläubiger Vorrang, der zuerst perfected hat. Erstreben beide Gläubiger die Perfection durch Eintragung, hat derjenige, der zuerst eintragen lässt, selbst dann Vorrang, wenn sein Sicherungsrecht erst nach der Eintragung des zweiten Gläubigers durch Attachment entsteht. VII. Ausnahme: Superpriority des PMSI Ein PMSI (siehe IV (4)) hat auch dann Supervorrang, wenn ein anderes Sicherungsrecht früher begründet und perfected wurde, da der Schuldner ohne den Kredit des PMSI- Gläubigers nie das Eigentum an dem Sicherungsgut erlangt hätte. 4

5 Steven H. Thal International Counsel T +1 (212) U.S. Mobile: +1 (917) International Mobile: +49 (172) sthal@phillipsnizer.com Florian von Eyb, LL.M. Attorney at Law in New York Rechtsanwalt (admitted in Germany) T +1 (212) fvoneyb@phillipsnizer.com Phillips Nizer LLP 666 Fifth Avenue New York, NY F +1 (212) Kreditsicherung durch bewegliches Eigentum im U.S. Recht VIII. Accession : Verbindung von verpfändeten Waren Für die Verbindung von verpfändeten Waren, bei der die Identität der beiden Einzelteile erhalten bleibt z.b. dem Einbau von Hardware in einen Computer gelten grundsätzlich die allgemeinen Vorrangregeln. Hat das Sicherungsrecht an der Hauptsache Vorrang, hier an dem Computer, so erstreckt es sich auch auf die damit verbundene Sache ( Accession ), hier auf die Hardware. IX. Fazit Artikel 9 UCC bietet ein gut funktionierendes System für eine verlässliche Absicherung von Krediten und Finanzierungsverkäufen durch bewegliches Eigentum des Schuldners. Bei Einhaltung aller Formalien gewährt das UCC Filing System dem Finanzierungsverkäufer oder Kreditgeber den gleichen oder aufgrund der Eintragung sogar besseren Schutz als Sicherungseigentum oder ein deutsches Pfandrecht. 5

6 Cloud Computing & Export Control Compliance Sidney N. Weiss Attorney at Law Sidney N. Weiss 675 Third Avenue New York, NY C +1 (914) T +1 (212) F +1 (212) snw@weisslaw.net U.S. export control laws do not require that an actual exportation occur for a violation to occur. It is sufficient that a deemed exportation has taken place. Deemed exportation occurs when foreigners (non-u.s. citizens or green card holders) obtain access to controlled U.S. technology, services, or products whether such access is in the United States or not. When companies utilize cloud computing to process or store their data they may be violating U.S. export control laws without any knowledge that they are doing so. The Government has not defined cloud computing, but it exists at least when information and data is stored or processed in many computers spread out in a multitude of locations and include data stored and shared by many users of the service for applications such as , calendar, messaging, and data loaded onto webbased programs. U.S. persons who transmit data through the cloud are deemed to have exported that data. If that data or information contains information or technology for which an export license is required, and no export license was obtained, then a violation of U.S. export control laws has occurred. Thus an inter-company containing such information or technology which is ed from one location in the United States to another location in the United States, may be deemed to have been exported if the was transmitted via the cloud. A violation of the export control laws occurs when non U.S.-citizens/residents have access to that information while the information is in the cloud. Those parties may be employees and technicians at the cloud service or actual recipients of the information. Since most information and data is either stored in, or transmitted via, the cloud, every company involved with export-controlled or licensable information, technology, or data must have an effective policy limiting access to its information while it is in the cloud. These companies must insure that their systems, and the clouds that they utilize, prohibit unlicensed recipients to have access to the information and data. Many cloud service providers are aware of this requirement of the law, and provide cloud services where access is restricted. But these enhanced security services are currently much more expensive than normal cloud services. However, it is expected that as the export control restrictions on cloud computing services become better known, the cost of such enhanced security services will drop. Nevertheless, regardless of costs, companies using the cloud to store, process, or transmit technology or services, are under an obligation to ensure that if such information or technology is subject to an export license, then such information is not transmitted to computers abroad; and that no non-u.s. citizen or resident have unlicensed access to that information. The first step for every company is to determine whether it uses the 6

7 Sidney N. Weiss Attorney at Law Sidney N. Weiss 675 Third Avenue New York, NY C +1 (914) T +1 (212) F +1 (212) snw@weisslaw.net Cloud Computing & Export Control Compliance cloud in any way. The next step is to determine whether any information, etc. stored or transmitted via the cloud is subject to export licensing or controls. If so, a compliance program limiting access must be utilized. Sidney N. Weiss is a customs and international trade lawyer in New York, and the former president of the Customs and International Trade Bar Association, the largest association of customs and trade lawyers in the world. 7

8 Chinese Outbound M&A in Germany Investment by Chinese enterprises in Germany has grown in recent years. Acquisitions and mergers of small and medium-sized enterprises constitute the main thrust of such investments and this trend is expected to continue. China became the third largest foreign investor in Germany in 2012, with investments rising year on year at a rate of 22%. Louise Gong Associate Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY T +1 (212) F +1 (212) lgong@chadbourne.com A Mutual Appeal Germany, like the United States, is an attractive destination for Chinese investment. Both countries offer highly skilled work forces, well established brands and networks and access to high tech sectors. The focus of Chinese foreign direct investment (FDI) in both the US and Germany has been on manufacturing, industrial machinery, the automotive sector and information technology. While the US has attracted China as a source of natural resources and fuels, Germany is becoming an increasingly popular destination for renewable energy projects. Amid Euro zone debt woes, German companies are looking to Chinese investors to provide the capital that they are seeking. M&A is attractive for Chinese investors in Germany as they can enter the EU market and diversify globally, access Euro currency, acquire strategic assets and management know how, and acquire technical expertise and IP. The structure of the M&A transaction is often critical to the success of Chinese outbound investments. For some years, Chinese investors have generally favored the direct purchase of private companies and joint ventures with other multinationals as their preferred mode of entry. There is now a clear trend away from 100% acquisition or control of an offshore target. The logistical challenges of integrating two very different types of business operating styles and the successful transfer of know how essential to the business present significant difficulties in practice. The current preferred structure is acquisition of a stake in the target company. This structure offers the Chinese purchaser clear advantages. Where the seller remains involved in the day to day operations of the company, the Chinese may benefit from the seller s knowledge of the business and its customers. Chinese investors often then seek equity step up rights, with a put/call option, to obtain a controlling interest in the future. In August 2012, Chinese automotive manufacturer Weichai Power Co. (Weichai) took a 25% stake in Germany s Kion Group, the world s second-largest forklift maker, for 738 million (USD 965 million). The investment comprised of a 70% in Kion s hydraulics subsidiary for 271 million (USD 354 million). This was the largest direct investment by a Chinese company in a German firm. Four months later, Weichai said it had obtained an option to increase its stake in Kion to one-third. While an initial minority acquisition may not trigger competition clearances, the exercise of subsequent step up rights may require them. 8

9 Louise Gong Associate Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY T +1 (212) F +1 (212) lgong@chadbourne.com Chinese Outbound M&A in Germany Another example is the outright acquisition earlier this year for 360 million (USD 475 million) of the German engineering firm Putzmeister Holding GmbH, the global market leader for cement mixing equipment. The German Approach Compared with investment controls in the US, Germany has a less restrictive foreign direct investment regime and, unlike the US, no investment veto has yet occured. Germany is also less concerned with national security issues that stem from investments by Chinese state-owned enterprises, which continue to be the dominant players in the outbound market. The most important objective associated with inbound FDI for Germany is the creation of jobs. Any foreign investment which creates new jobs or safeguards employment in Germay is highly welcomed. The German FDI policy is also non-discriminatory. No matter how large the potential investor or investment, which industrial branch and from which country, every investor is treated equally. This contrasts to that of the US FDI regime where a lack of transparency surrounding the clearance process of the Commiteee on Foreign Investment in the United States, particuarly the criteria guiding that process (including certain blacklisted industries), may contribute to uncertainty among some Chinese investors. The Chinese President Li Kegiang s recent inaugural visit to Germany in May further emphasized to the German business community China s serious interest in building a China-German strategic partnership. 9

10 German Federal Constitutional Court on the Service of Statements of Claim Dr. Thomas Rinne Partner v. Einem & Partner Rechtsanwälte Goethestraße Frankfurt am Main T +49 (69) F +49 (69) rinne@fra.einem.de The German Federal Constitutional Court (Bundesverfassungsgericht) ruled recently on the admissibility of a service of a US statement of claim to a plaintiff in Germany. With order of January 9, 2013 (2 BvR 2805/12) the German Federal Constitutional Court rejected constitutional complaints with regard to the service of a statement of claim issued by a court in the United States. The main reason why the complainant had filed a constitutional complaint (Verfassungsbeschwerde) was the fact that the statement of claim contained the request to condemn the defendant to pay punitive damages (treble damages). Indeed, the execution of a sentence convicting the plaintiff to pay punitive damages would not be enforceable in Germany. The rejection of the constitutional complaint was based on the following facts: The plaintiff, a US company, claimed damages before the Unites States District Court, Northern District of California, for the alleged infringement of Federal Trademark, for Unfair Competition and False Designation of Origin as well as the violation of the Anti- Cybersquatting Consumer Protection Act by a German company, the defendant. While the Court having jurisdiction over the case was located in California, the statement of claim had to be served to the plaintiff in Germany through the competent German court as the Central Authority. The formalities of this kind of international service are laid down in the Hague Service Convention of The complainant had first sought in vain legal remedies against the service before the Higher Regional Court (Kammergericht Berlin) and then filed constitutional complaints before the Federal Constitutional Court asserting that the service of the statement of claim would infringe the sovereignty or security of the Federal Republic of Germany and would therefore have to be refused pursuant to Art. 13 of the Hague Service Convention. The Federal Constitutional Court, however, held that the requirements established by Art. 13 of the Hague Service Convention for refusing the service were not met and that the service of the statement of claim would also not violate the complainant s fundamental rights protected by the German Constitution. The mere fact that the statement of claim contains the request to condemn the plaintiff to punitive damages cannot be considered as being contrary to the rule of law and fundamental rights in Germany. Nor do peculiarities of the American legal system, such as the pre-trial discovery and the American rule for attorney s fees (no reimbursement of attorney s fees to the winning party), violate inalienable rights of the complainant. Rather, these are in the reasoning 10

11 Dr. Thomas Rinne Partner v. Einem & Partner Rechtsanwälte Goethestraße Frankfurt am Main T +49 (69) F +49 (69) rinne@fra.einem.de German Federal Constitutional Court on the Service of Statements of Claim of the Federal Constitutional Court consequences of the participation of a company in cross-border business activities. The decision of the Federal Constitutional Court is of great importance for companies involved in cross-border business between Germany and the US. It confirms the prevalence of the Hague Service Convention and implicitly postpones the decision whether a judgment rendered in the US is enforceable or not against a company in Germany to the point in time when the judgment has actually been handed down provided the German plaintiff objects against its enforcement which could be the case if punitive damages are actually awarded. 11

12 US-Produkthaftung: Herstellerrisiko Post-sale Duty to Warn, Retrofit or Recall Marcus Römer, LL.M. Fachanwalt für Handels- und Gesellschaftsrecht Attorney at Law (New York, U.S. Supreme Court) Nietzer & Häusler Rechtsanwälte Attorneys at Law (USA) Notar Allee 40, 13. Stockwerk Heilbronn T +49 (71) F +49 (71) roemer@unternehmensrecht.com Blogs: Während sich die meisten Hersteller über die Eigenschaften und die Sicherheit ihrer Produkte zum Zeitpunkt des Verkaufs bzw. des Inverkehrbringens umfassend Gedanken machen, übersehen sie häufig die sich zeitlich daran anschließenden Obliegenheiten ( Post-sale Duties ): diese können sowohl in einer Verpflichtung bestehen, betreffend neu entdeckter Risiken ihrer Produkte zu warnen als auch Umrüstungen vorzunehmen oder die Produkte gar zurückzurufen. Diese Fälle können eine erheblich wirtschaftliche Belastung darstellen und den Boden für Klagen nähren. Die Rechtslage wird für den Hersteller aufgrund unterschiedlicher Rechtsprechung in den einzelnen US-Bundesstaaten zusätzlich erschwert. Während ein Großteil der Staaten eine Verpflichtung der Hersteller zu Warnungen grundsätzlich anerkennt, ist die Mehrheit bei der Verpflichtung der Hersteller zur Umrüstung oder Rückruf zurückhaltend. Als Konsequenz der sich entwickelten Rechtsprechung zumindest betreffend einer Duty to Warn hat das American Law Institute (ALI) im Rahmen des Restatement (Third) of Torts: Products Liability 10 (a) (1998) (nachfolgend Restatement ) zumindest diesem Punkt Rechnung getragen, indem es eine Haftung aufstellt für Fälle, in denen eine vernünftige / reasonable Person gewarnt hätte. Dies sei im Folgenden bei folgender Konstellation gegeben: (1) der Verkäufer weiß oder hätte vernünftigerweise wissen müssen, dass das Produkt ein erhebliches Risiko für Personen oder Eigentum darstellt; und (2) diejenigen, die gewarnt werden müssten, sind identifizierbar und es kann davon ausgegangen werden, dass diese, vernünftig betrachtet, unwissend bezüglich des Schadensrisikos sind; und (3) es kann eine Warnung an sie kommuniziert werden und diese können entsprechend der Warnung handeln; und (4) das Schadensrisiko ist hinreichend hoch um die Belastung einer Warnung zu rechtfertigen. Einige Staaten haben diese Voraussetzungen übernommen, andere haben eine Haftung betreffend einer Verpflichtung zur Warnung an höhere Voraussetzungen geknüpft, bzw. noch keine abschließende Meinung hierzu manifestiert. Betreffend einer Duty to Retrofit or Recall, der sicherlich noch sehr viel weitergehenden und kostenintensiveren Verpflichtung, gibt es keine entsprechende Parallele im Common Law. 12

13 Marcus Römer, LL.M. Fachanwalt für Handels- und Gesellschaftsrecht Attorney at Law (New York, U.S. Supreme Court) Nietzer & Häusler Rechtsanwälte Attorneys at Law (USA) Notar Allee 40, 13. Stockwerk Heilbronn T +49 (71) F +49 (71) roemer@unternehmensrecht.com Blogs: US-Produkthaftung: Herstellerrisiko Post-sale Duty to Warn, Retrofit or Recall Zur Frage des Rückrufs von Produkten knüpft das ALI im selben Restatement unter 11 eine Haftung bei unterlassenem Rückruf an folgende Voraussetzungen: (a) (1) eine behördliche Direktive aufgrund Gesetz oder Verwaltungsvorschrift sieht speziell einen Rückruf des Produkts vor; oder (2) der Verkäufer oder Händler, ohne unter vorstehender Ziff. (a) (1) verpflichtet zu sein, unternimmt einen Rückruf; und (b) der Verkäufer oder Händler unterlässt entgegen einer vernünftigen Person den Rückruf. Hierbei ist interessant zu sehen, dass selbst im Rahmen einer freiwilligen Rückrufaktion eine Haftung eintritt, wenn der Rückruf fehlerhaft erfolgt. In diesem Zusammenhang ist es für Unternehmen wichtig zu beachten, dass von den vorgenannten Risiken betreffend Post-sale Duties nicht nur die Hersteller direkt, sondern auch Rechtsnachfolger/ Successors und Scheinhersteller / Apparent Manufacturer betroffen sein können. Als grobe Leitlinien empfehlen wir, mindestens folgende Maßnahmen zu treffen: Behalten Sie im Rahmen der Weiterentwicklung Ihrer Produkte insbesondere sicherheitsrelevante Neuerungen im Auge. Beobachten Sie die für Sie relevante Entwicklung im Bereich der Post-sale Duties und möglicherweise bestehende Rechtstreitigkeiten hierzu. Prüfen Sie Ihren aktuell bestehenden Versicherungsschutz in den USA. Dieser sollte neben entsprechender Produkthaftung in ausreichendem Maße Rechtsverteidigungskosten mitumfassen, denn in den USA erfolgt in der Regel auch bei erfolgreichem Prozessausgang keine Kostenerstattung durch die gegnerische Partei ( American Rule ). Und last but not least: Lassen Sie sich nicht verunsichern. Gute Vorarbeiten und schnelles Reagieren sind die halbe Miete. Und dazu gehört oftmals auch die präventive Zusammenarbeit zwischen interner Rechtsabteilung und externem Anwalt mit entsprechender Praxiserfahrung. Als eine seit über 17 Jahren auf deutsches und U.S.-amerikanisches Unternehmensrecht spezialisierte Wirtschaftskanzlei (nunmehr auch auf China und UK ausgerichtet) verfügt NIETZER & HÄUSLER über entsprechende Erfahrungen im Umgang mit US- Produkthaftung und berät Sie gerne bei der Beurteilung der entsprechenden Rechtslage, bei der Abwehr geltend gemachter Ansprüche bzw. Klagen, sowohl in Deutschland als auch in den USA. 13

14 Are you sure you know where you going to sue or be sued? New Limits to Choice of Law and Choice of Venue Clauses in Cross-Border Agreements Dr. Robert C. J. Loef Rechtsanwalt Noerr LLP Representative Office 885 Third Avenue, Suite 2610 New York, NY T +1 (212) robert.loef@noerr.com You thought your choice of law and choice of venue clause in your cross-border agreements would give you peace of mind? You might want to think again. A recent decision by the German Federal Court of Justice (BGH) invalidated a choice of venue clause, because the chosen venue would not have recognized mandatory international law and subsequently found that jurisdiction of German courts and German law applied to the case. What s the background? The agreement at hand had been entered into by a German commercial agent and a US company, whose products the agent helped to market in Germany. The agency agreement provided for the laws of the State of Virginia to be applicable and the courts of the State of Virginia to have exclusive jurisdiction over any dispute arising out of or in connection with the agency agreement. The US company terminated the agreement. Subsequently, the agent claimed damages for loss of clientele, filing a suit at the Regional Court (LG) in Heilbronn, Germany. The legal reference for such claim is Sec. 89 b of the German Commercial Code (HGB). This particular section was implemented in accordance with, and as required by, the European Union Directive No. 86/653/EWG, which contained a respective model rule. What did the court find? The German Federal Court of Justice found the claim to be admissible and found jurisdiction of German courts over the case at hand, invalidating the choice of law and choice of venue clauses of the agreement. The ruling of the BGH (BGH, , Az. VIII ZR 25/12) can be summarized as follows: (a) Sec. 89 b of the German Commercial Code, by virtue of the fact that it was introduced into German law in accordance with a EU directive, constitutes mandatory international law ; (b) Virginia law does not provide for a respective rule, granting the agent a comparable right to claim damages. Hence, application of Virginia law in a Virginia court would deprive the agent of his rights pursuant to mandatory international law and therefore the choice of law could not be upheld; and 14

15 Dr. Robert C. J. Loef Rechtsanwalt Noerr LLP Representative Office 885 Third Avenue, Suite 2610 New York, NY T +1 (212) robert.loef@noerr.com Are you sure you know where you going to sue or be sued? New Limits to Choice of Law and Choice of Venue Clauses in Cross-Border Agreements (c) It would be highly unlikely that a Virginia court would apply German law in order to accord the agent its rights under mandatory international law. Thus, the choice of venue could not be upheld either, giving German courts jurisdiction. What is still left undecided? However, the decision leaves several questions unanswered. First and foremost, the BGH failed to provide a definition of mandatory international law abstract from the case at hand. Also, it remains unclear under what exact circumstances contractual choice of law and venue clauses will be considered invalid. So far the courts only provided a rather vague guideline, by stating that it must be certain that the agreed upon jurisdiction would ignore mandatory international law. Furthermore, the court did not specify if the invalidity of the choice of law and venue clauses only applies to those sections of the agreement that concern mandatory international law or to the entire agreement, even though the decision at hand appears to support the latter assumption. What you can do going forward. With its decision, the German Federal Court of Justice indirectly affirmed several previous judgments rendered by lower German courts. It is likely that German courts will decide similar cases in the same fashion going forward. Therefore, you should be aware of and prepare for the fact that German courts might assume jurisdiction because of the application of mandatory international law, invalidating the parties explicit choice of law and venue. To prevent unwanted consequences associated with such a decision, the following steps should be considered: (a) In the case at hand, mandatory international law is applicable because the contract was fashioned as a commercial agent agreement. There are similar contractual structures available under German law, which do not entail mandatory international law such as structures involving authorized dealers or other distribution channels. (b) Consequently, regardless of the specific agreement at hand, the entire agreement should be reviewed by German counsel to identify potential aspects that could trigger the application of those German laws that are considered mandatory international law pursuant to the standard affirmed by the BGH, in order to explore if it is possible to draft around such issues; (c) If such issues cannot be avoided, the parties should contemplate if: 15

16 Dr. Robert C. J. Loef Rechtsanwalt Noerr LLP Representative Office 885 Third Avenue, Suite 2610 New York, NY T +1 (212) robert.loef@noerr.com Are you sure you know where you going to sue or be sued? New Limits to Choice of Law and Choice of Venue Clauses in Cross-Border Agreements (i) the parties want to provide for a German venue as an alternative to their international choice of law and venue for the event that mandatory international law forces them to use a German forum to ensure that any related dispute would at least be litigated in front of the German court of choice; or (ii) the economics of the matter justify such choice, arbitration should be selected as the forum of dispute resolution. 16

17 Intercompany loans A focus on three rules you should keep in mind Several rules are in force to protect the United States from losing tax revenue due to abusive related party transactions. In this article we are focusing on those rules that may have effect on the realization of intra-group loans between German or other foreign shareholders and their U.S. subsidiaries. Ellen Hickman, CPA, MBA, MST Senior Manager, International Tax Services T +1 (215) ellen.hickman@parentebeard.com Kathrin Hacklander, Steuerberaterin Manager, International Tax Services German Desk T +1 (646) kathrin.hacklander@parentebeard.com ParenteBeard LLC The Empire State Building 350 Fifth Avenue, 68th Floor New York, NY T +1 (212) Related party rules of Internal Revenue Code ( IRC ) Section 267 IRC Section 267 includes general rules regarding related party transactions such as sales or exchanges of property and the matching of deductions and income. In consequence of the latter, interest expenses to related parties that have been accrued are only deductible when the amount is included in the recipient s income. Foreign persons are considered to be cash-basis taxpayers for US income tax purposes because they only pay US tax when they receive cash. A borrower may only deduct the interest expense when the payment has actually been made. Earnings stripping rules of IRC Section 163 (j) If a U.S. company is making interest payments to foreign related parties, but those foreign related parties on the other hand would not be taxed in the U.S. on the interest income received, the interest deductions may be limited by the earnings stripping rules of IRC Sec 163(j). A comparable rule in Germany is the Interest Deduction Ceiling Regulation ( Zinsschranke ). The U.S. statutory tax rate on interest is 30%. If an income tax treaty, such as the Income Tax Treaty between the United States and Germany, reduces the applicable tax rate on interest payments, the interest payments are classified as partly or wholly exempt. A two-step test needs to be applied to check if a company s interest payments fall under the deduction limitation. The company first should determine if its debt-to-equity ratio is greater than 1.5:1. If this is the case, the company needs to determine if its total interest expense exceeds 50% of its adjusted taxable income, which is generally the EBITDA. If so, the company has excess interest expense and the interest payments to related parties are not deductible in this amount. Let s have a look at an example: Adjusted taxable income (EBITDA) $1,500 Total interest payments $1,200 Interest payments to foreign related parties $1,000 Excess interest expense 1,200 (1,500 x 50%) $450 17

18 Ellen Hickman, CPA, MBA, MST Senior Manager, International Tax Services T +1 (215) ellen.hickman@parentebeard.com Kathrin Hacklander, Steuerberaterin Manager, International Tax Services German Desk T +1 (646) kathrin.hacklander@parentebeard.com ParenteBeard LLC The Empire State Building 350 Fifth Avenue, 68th Floor New York, NY T +1 (212) Intercompany loans A focus on three rules you should keep in mind As a result the excess interest expense in the amount of $450 is not tax deductible in the current taxable year. In other words, the interest payments to foreign related parties are only deductible up to (1, =) $550. However, the interest payments of $450 are not lost. They can be carried forward indefinitely. Also, highly-profitable years may have no excess interest expense because 50% of the EBITDA may be greater than the total interest payments. Such an excess may also be carried forward, but only for a period of three years and to offset any carried forward interest expenses. Transfer pricing rules of IRC Section 482 Besides the related party rules and the earnings stripping rules, one should bear in mind the transfer pricing rules of IRC Sec 482. Related parties must charge interest at an arm s-length rate on intercompany loans. Otherwise authorities may make adjustments and use the arm s-length rate for their tax determination. An arm s-length rate is an interest rate charged on comparable loans between unrelated parties. ParenteBeard can help you determine an appropriate financing structure and answer specific questions to the interest deductions limitations. Please contact us to discuss the application of these rules to your situation. 18

19 FATCA: It s not just for Financial Institutions Elisa Fay, CPA National Partner in Charge of Tax Rödl Langford de Kock LLP Certified Public Accountants 1100 South Tower 225 Peachtree St., N.E. Atlanta, GA T Direct: +1 (404) elisa.fay@roedlusa.com Dr. Will Dendorfer, CPA, StB Partner Rödl Langford de Kock LLP Certified Public Accountants 747 Third Avenue, 4th Floor New York, NY T Direct: +1 (212) will.dendorfer@roedlusa.com In 2010, Congress enacted the Foreign Account Tax Compliance Act, known as FATCA. Much has been said about the requirement under FATCA for Foreign Financial Institutions (FFIs), such as German banks and certain German investment entities, to report information to the IRS about financial accounts held by U.S. taxpayers or be subject to withholding. In fact, on 5/31/13, the U.S. and Germany signed a bilateral agreement (FATCA Agreement) 1 which has not entered into force at the time this article went to press, whereby Germany (and vice versa, the U.S.) has to collect the relevant data from the German FFIs and exchange this information on an automatic basis with the U.S. A lesser known fact though is that generally any foreign entity (e.g., a German company doing business in the U.S.) may also have certain reporting obligations under FACTA. FATCA joins an existing documentation and withholding regime that has been in place for many years. Withholding agents have long been required to withhold on U.S. sourced fixed, determinable and annual periodical income (FDAPI e.g., interest and dividends) and on income effectively connected with a U.S. trade or business (ECI), absent appropriate documentation for reduced or zero withholding. The FATCA regime s purpose is generally not to impose a withholding tax (although it may). In effect, it functions more like a penalty mechanism, forcing foreign entities to provide information. Ultimately, the FATCA regime is intended to bring otherwise non-compliant U.S. citizens and U.S. tax residents into compliance with U.S. tax law. FATCA requires withholding at a rate of 30% on withholdable payments made after 12/31/13 to certain Nonfinancial Foreign Entities (NFFEs) that do not provide information regarding their substantial U.S. owners (unless an exception applies). An NFFE is generally any foreign entity that is not an FFI. A witholdable payment is essentially FDAP income and any gross proceeds from the sale or other disposition of property (that can produce U.S. source interest or dividends), but not ECI 2. Withholding on a payment to an NFFE is not required if all of the following are satisfied: The NFFE is the beneficial owner of the payment and provides the withholding agent with a certification that it does not have any substantial U.S. owners (as defined below), or provides the name, address, and TIN of each substantial U.S. owner of the beneficial owner. The withholding agent does not know or have reason to know that any information provided about the beneficial owner or the payee is incorrect. 1 To Improve International Tax Compliance and with Respect to the U.S. Information and Reporting Provisions Commonly Knows as the Foreign Account Tax Compliance Act. 2 Exceptions apply for certain types of payments and to certain types of entities. 19

20 Elisa Fay, CPA National Partner in Charge of Tax Rödl Langford de Kock LLP Certified Public Accountants 1100 South Tower 225 Peachtree St., N.E. Atlanta, GA T Direct: +1 (404) elisa.fay@roedlusa.com Dr. Will Dendorfer, CPA, StB Partner Rödl Langford de Kock LLP Certified Public Accountants 747 Third Avenue, 4th Floor New York, NY T Direct: +1 (212) will.dendorfer@roedlusa.com FATCA: It s not just for Financial Institutions The withholding agent reports information regarding substantial U.S. owners, payments made to the NFFE, and any other information that may be required by the IRS. A foreign entity is treated as having a substantial U.S. owner if any specified U.S. person owns directly or indirectly more than 10% of a foreign corporation s stock (by vote or value), a foreign partnership s profits or capital interests, or a foreign trust s beneficial interests (or any portion of a trust treated as a grantor trust). In the case of certain investment institutions, a specified U.S. person that owns any interest (i.e., more than 0%) in the corporation, partnership, or trust is treated as a substantial owner. Documentation of some kind will generally be needed to support each U.S. source payment made to a foreign payee. The redesigned W-8 series of forms will identify foreign payees, indicate their FATCA status, disclose substantial U.S. owners, and claim any available exemptions from withholding. More foreign payees will find it necessary to obtain U.S. tax identification numbers in order to complete W-8 series forms or supply other documentation required to avoid withholding. Withholding on NFFEs is only a small piece of the FATCA puzzle and is only briefly described here. Compliance with FATCA can seem overwhelming, but this is also a good opportunity to evaluate and revamp existing withholding and compliance processes. Businesses are well advised to seek guidance from their tax advisors. 20