## Facts

- Guardian Industries Corp. filed a consolidated U.S. return including domestic subsidiary Interguard Holding Corp. (IHC).
- IHC wholly owned Guardian Industries Europe, S.a.r.l. (GIE), a Luxembourg entity that owned Luxembourg subsidiaries (the Guardian Luxembourg Group).
- GIE elected under Treas. Reg. § 301.7701-3 to be treated as a disregarded entity for U.S. tax purposes, causing its assets, income, and liabilities to be treated as those of its single owner (IHC) for U.S. tax purposes.
- Under Luxembourg law, GIE and its Luxembourg subsidiaries filed a consolidated Luxembourg corporate income tax return; the assessment was issued to the parent and paid by GIE.
- For 2001, GIE made advance Luxembourg income tax payments totaling €3,429,074 for the consolidated group.
- On its original U.S. return, Guardian claimed foreign tax credits (FTCs) only for the portion of Luxembourg tax allocated to GIE’s own income, allocating the remainder among Luxembourg subsidiaries.
- Guardian later filed an amended return and refund claim asserting that Luxembourg law imposed legal liability for the entire consolidated tax on GIE alone, entitling Guardian (through GIE’s disregarded status) to direct FTCs for the full amount.
- The United States argued Luxembourg law imposed either separate liability on each subsidiary for its share or joint-and-several liability among group members, requiring pro rata allocation for U.S. FTC purposes.

## Issues

1. Under Luxembourg consolidated tax law, which entity had legal liability for the Luxembourg corporate income tax assessed on the consolidated income of the Luxembourg group for purposes of Treas. Reg. § 1.901-2(f)(1)?
2. If Luxembourg law imposed separate or joint-and-several liability on group members, must the Luxembourg tax be allocated among the Luxembourg entities, limiting the U.S. taxpayer’s direct FTC to the portion attributable to GIE?

## Decision

- The Court of Federal Claims granted Guardian’s motion for summary judgment and denied the government’s cross-motion.
- The court held that Luxembourg law imposed sole and direct legal liability for the consolidated Luxembourg corporate income tax on GIE.
- Applying the technical taxpayer rule, the court treated GIE as the taxpayer for the full Luxembourg tax, even if affiliates bore economic burden through internal arrangements.
- Because GIE was disregarded for U.S. tax purposes, its foreign tax liability was treated as IHC’s (and thus the U.S. consolidated group’s), allowing Guardian a direct FTC under I.R.C. § 901 for the entire Luxembourg tax paid by GIE.
- The court ordered judgment for Guardian, resulting in a substantial refund (approximately $2.7 million).

## Legal Principles

- Under Treas. Reg. § 1.901-2(f)(1), entitlement to a foreign tax credit turns on the person on whom foreign law imposes legal liability for the tax, regardless of who remits the payment.
- The legal-liability inquiry is determined by foreign law; economic incidence, internal allocations, or reimbursement rights do not control the U.S. FTC “taxpayer” determination.
- A foreign parent’s status as the assessed and collected-from entity under a foreign consolidated regime can establish sole legal liability for the consolidated tax where foreign public law does not impose separate or joint-and-several liability on subsidiaries.
- When a foreign entity is treated as a disregarded entity for U.S. tax purposes, its income and foreign tax liabilities are treated as those of its single owner, permitting direct FTC treatment if the disregarded entity is the foreign-law taxpayer.

## Conclusion

The court held that Luxembourg law made the Luxembourg parent (GIE) solely legally liable for the consolidated Luxembourg corporate income tax, so the entire tax was creditable under the technical taxpayer rule; because GIE was disregarded for U.S. purposes, Guardian was treated as having paid the full tax and was entitled to the full foreign tax credit and refund.


Guardian Indus. Corp. & Subsidiaries v. United States, 65 Fed. Cl. 50 (Fed. Cl. 2005)