- 54 -
2(a), Income Tax Regs.22 The purpose of the credit is to reduce
international double taxation. American Chicle Co. v. United
States, 316 U.S. 450, 452 (1942). U.S. tax principles are applied
in deciding whether a foreign levy is a creditable income tax.
Goodyear Tire & Rubber Co., 493 U.S. 132 (1989); Biddle v.
Commissioner, 302 U.S. 573 (1938); United States v. Phillips
Petroleum Co. v. Commissioner, 104 T.C. 256, 295 (1995). However,
the law of the foreign state is first looked at to determine the
nature of the obligations and rights which form the basis of the
claim of a foreign tax credit. Cf. Phillips Petroleum Co. v.
Commissioner, supra; H.H. Robertson Co. v. Commissioner, 8 T.C.
1333 (1947), affd. 176 F.2d 704 (3d Cir. 1949). Although prior
cases involving other U.S. taxpayers' entitlement to foreign tax
credits for Brazilian withholding tax paid on interest remittances
to them have generally held the Brazilian withholding tax to be a
creditable foreign income tax for purposes of section 901, e.g.,
Continental Ill. Corp. v. Commissioner, 998 F.2d at 518-519; Nissho
Iwai Am. Corp. v. Commissioner, 89 T.C. at 773-774, none of those
cases squarely dealt with the legal liability and Central Bank
issues to be resolved by us infra.
22 In November 1980, the Internal Revenue Service issued
temporary regulations which set forth requirements for, and
limitations on, the amount of foreign tax credit. Secs. 4.901-2
to 4.903-1, Temporary Income Tax Regs., 45 Fed. Reg. 75647-75658
(Nov. 17, 1980). These temporary regulations generally were made
applicable to taxable years ending after June 15, 1979. Final
regulations under sec. 901 were made effective for taxable years
beginning after Nov. 14, 1983.
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