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A. Non-Tax-Immune Borrowers/Liability Issue
In prior cases involving Brazilian withholding tax paid by
non-tax-immune Brazilian borrowers on their net loan interest
remittances to domestic corporations, we and other courts,
including the U.S. Courts of Appeals for the Seventh and Eighth
Circuits, have held those Brazilian withholding tax payments to be
a potentially creditable tax to the domestic corporations for
purposes of section 901. As the Court of Appeals for the Eighth
Circuit explained in Norwest Corp. v. Commissioner, 69 F.3d at
1407:
The Commissioner argues that Norwest is not legally
liable for the local [Brazilian] tax, and thus is not
entitled to * * * [foreign tax credit] for the local
tax, because only the borrower was legally obligated to
withhold it. * * *
We reject this argument as did the tax court below
and the other courts which have addressed this question.
See Continental Ill. Corp. v. Commissioner, 998 F.2d 513,
518-19 (7th Cir. 1993) (Continental) * * * ;
Continental Ill. Corp. v. Commissioner, * * * [T.C.
Memo. 1988-318], affd. sub nom. Citizens & S. Corp. v.
Commissioner, 919 F.2d 1492 (11th Cir. 1990) (per
curiam); Nissho Iwai Am. Corp. v. Commissioner, 89 T.C.
765, 773-74 * * * (1987) (Nissho). It is a well-settled
principle under United States tax law that the person
obligated to pay the tax is not necessarily the same
person to whom legal liability attaches. Nissho, 89 T.C.
at 773 * * * . Nissho, which the tax court here cites,
compared the Brazilian system to the wage withholding
system in the United States under which employees remain
legally liable for income taxes, although the employer is
the person obligated to withhold the tax and pay the tax
to the government. Id. Similarly, the Brazilian
23(...continued)
procedures for presenting and utilizing material on
issues of foreign law by which a sound result can be
achieved with fairness to the parties.
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