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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