Compaq Computer Corporation and Subsidiaries - Page 1

                                   113 T.C. No. 25                                    

                               UNITED STATES TAX COURT                                

            COMPAQ COMPUTER CORPORATION AND SUBSIDIARIES, Petitioners v.              
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 24238-96.                Filed November 18, 1999.           

                    H, a U.K. corporation, paid a dividend to P, its                  
               U.S. parent.  Upon payment of the dividend, H, pursuant                
               to the law of the United Kingdom, became liable for and                
               paid advance corporation tax (ACT) and became entitled                 
               to a credit against its U.K. corporate tax.  H                         
               allocated the U.K. credit to its two wholly owned                      
               subsidiaries, S1 and S2, which used the U.K. credit                    
               against their respective mainstream corporate tax                      
               liabilities.  Pursuant to I.R.C. sec. 901(a), P claimed                
               a foreign tax credit for the ACT paid by H.                            
                    Held:  Pursuant to Article 23(c)(1) of the U.S.-                  
               U.K. Convention, the payor of the ACT is the                           
               corporation that pays the dividend and corresponding                   
               ACT and not the corporation that uses the corresponding                
               U.K. credit against its U.K. tax liability.                            
               Accordingly, P is entitled to claim a foreign tax                      
               credit pursuant to I.R.C. sec. 901(a) for the ACT paid                 
               by H.  Held, further, the U.K. credit allocated by H to                

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