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During 1992, Compaq U.K. declared and paid a dividend of
^11,800,000 to petitioner. As a result of paying the dividend,
Compaq U.K. became liable for and paid ACT in the amount of
^3,933,333. Upon payment of the ACT, Compaq U.K. became
entitled to a corporate offset against its mainstream corporate
income tax. Additionally, pursuant to Article 10 of the U.S.-
U.K. Convention, petitioner became entitled to a payment from the
United Kingdom equal to one-half of the shareholder credit to
which an individual shareholder resident of the United Kingdom
would have been entitled.
Compaq U.K. surrendered the corporate offset to the U.K.
Subs. instead of using it against Compaq U.K. tax. The U.K.
Subs. used the corporate offset to reduce their 1992 U.K.
mainstream tax liability. The U.K. Subs. did not pay any
dividends during 1992.
Petitioner, pursuant to Rev. Proc. 80-18, 1980-1 C.B. 623,
modified by Rev. Proc. 81-58, 1981-2 C.B. 678; and Rev. Proc. 84-
60, 1984-2 C.B. 504, and amplified and clarified by Rev. Proc.
90-61, 1990-2 C.B. 657, did not claim a foreign tax credit for
the unrefunded portion of the ACT paid by Compaq U.K. Following
the opinion of the U.S. Court of Appeals for the Federal Circuit
in Xerox Corp. v. United States, 41 F.3d 647 (Fed. Cir. 1994),
revg. 14 Cl. Ct. 455 (1988), petitioner made an informal claim
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