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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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