FIRST TAX COURT TEST OF NEW IRS APPROACH TO AGENCY PERMANENT ESTABLISHMENT - SERVICE LOSES

In Taisei, the court looked to the OECD commentary on its 1977 model treaty to interpret terms used in its 1963 model on which the U.S.-Japan treaty was based, and concluded that the Service's theory was correct-an agent that lacked either legal or economic independence would result in creation of a permanent establishment. Nevertheless, the IRS failed to prove that the U.S reinsurance managing agent was not independent of its Japanese insurer principals, or that the pool of four insurers was a single principal.