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I. The Legal Liability Issue
A foreign tax is generally creditable for purposes of section
901 only if the domestic corporation is legally liable under
foreign law for the tax. Nissho Iwai Am. Corp. v. Commissioner,
supra at 773-774; sec. 4.901-2(g), Temporary Income Tax Regs., 45
Fed. Reg. 75655 (Nov. 17, 1980); sec. 1.901-2(f), Income Tax Regs.
However, it is recognized that legal liability for the tax and the
obligation to pay are not necessarily the same. For example, under
a withholding system, legal liability for the tax and the
obligation to pay the tax are different. The Federal wage
withholding system illustrates this difference--the employer is the
person obligated to withhold the tax and to pay the withheld tax to
the Government; the employee is the person legally liable for the
tax. Nissho Iwai Am. Corp. v. Commissioner, supra at 773.
To resolve the legal liability issue, we must examine
Brazilian law. In this regard, Rule 146 provides, in pertinent
part:
RULE 146. DETERMINATION OF FOREIGN LAW
* * * The Court, in determining foreign law, may
consider any relevant material or source, including
testimony, whether or not submitted by a party or
otherwise admissible. The Court's determination shall be
treated as a ruling on a question of law.
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