Compaq Computer Corporation and Subsidiaries - Page 19




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               Lastly, respondent contends that, notwithstanding the treaty           
          provisions, a foreign tax credit is not available to petitioner             
          because use of the corporate offset by the U.K. Subs. results in            
          a subsidy within the meaning of section 901(i).  The relevant               
          parts of section 901(i) provide:                                            
                    SEC. 901(i).  Taxes Used to Provide Subsidies.--                  
               Any income, war profits, or excess profits tax shall                   
               not be treated as a tax for purposes of this title to                  
               the extent--                                                           
                         (1) the amount of such tax is used (directly                 
                    or indirectly) by the country imposing such tax to                
                    provide a subsidy by any means to the taxpayer, a                 
                    related person (within the meaning of section                     
                    482), or any party to the transaction or to a                     
                    related transaction, and                                          
                         (2) such subsidy is determined (directly or                  
                    indirectly) by reference to the amount of such                    
                    tax, or the base used to compute the amount of                    
                    such tax.                                                         
                                                                                     
          Section 1.901-2(e), Income Tax Regs., provides that a subsidy               
          could include a credit provided to the taxpayer or to a related             
          party.  Section 1.901-2(e)(ii), Income Tax Regs., however,                  
          further explains:  "The term 'subsidy' includes any benefit                 
          conferred, directly or indirectly, by a foreign country to one of           
          the parties enumerated in paragraph (e)(3)(i)(A) of this section.           
          Substance and not form shall govern in determining whether a                
          subsidy exists."                                                            











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