- 93 -
Since that case turned on the absence of a legal liability for
the foreign withholding tax on the part of the withholding agent
and the U.S. taxpayer as well, id. T.C. Memo. 1991-66 at n. 46,
the inapplicability of Example (3) was obvious. Certainly the
case offers no support for respondent's position herein where
there clearly was a legal liability on the part of Amoco Egypt
and the assumption of that liability by EGPC.
Respondent's reliance on Nissho Iwai American Corp. v.
Commissioner, 89 T.C. 765 (1987), is misplaced. In Nissho, a U.S.
taxpayer had engaged in a net loan transaction with a private
borrower in Brazil, whereby the borrower agreed to pay interest
at a certain rate net of any Brazilian withholding taxes.
Simultaneous with remittance of the tax by the borrower, the
borrower received a subsidy from the Brazilian Government based
on the amount of the tax paid. The Court applied the indirect
subsidy rule in the temporary regulations, section 4.901-
2(f)(3)(ii), Temporary Income Tax Regs., 45 Fed. Reg. 75653-75654
(Nov. 17, 1980), which it held was reasonable, and denied foreign
tax credits to the taxpayer for the amount of tax which was
credited to the Brazilian borrower.
The holding in Nissho is based upon the finding that the
borrower received the subsidy by virtue of the refund of the
withheld tax. The borrower was a private party, and thus there
was no question it obtained a benefit, so that it does not aid us
in our determination herein. Continental Illinois Corp. v.
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