Compaq Computer Corporation and Subsidiaries - Page 20




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               Section 1.901-2(e)(4), Income Tax Regs., discusses the                 
          treatment of multiple levies, which are not considered subsidies,           
          and provides:8                                                              
                    (4) Multiple levies--(i) In general.  If, under                   
               foreign law, a taxpayer's tentative liability for one                  
               levy (the "first levy") is or can be reduced by the                    
               amount of the taxpayer's liability for a different levy                
               (the "second levy"), then the amount considered paid by                
               the taxpayer to the foreign country pursuant to the                    
               second levy is an amount equal to its entire liability                 
               for that levy, and the remainder of the amount paid is                 
               considered paid pursuant to the first levy.  This rule                 
               applies regardless of whether it is or is not likely                   
               that liability for one such levy will always exceed                    
               liability for the other such levy. * * *                               
          We do not disagree with the regulation's prescription that                  
          substance rather than form controls the determination of whether            
          a credit is a subsidy.  Accordingly, we conclude that, under the            
          rules of section 1.901-2(e)(4), Income Tax Regs., the ACT is                
          comparable to a second levy, and the U.K. mainstream tax is                 
          comparable to a first levy.  The amount paid by a corporation to            
          the United Kingdom as ACT is therefore fully creditable, and the            
          mainstream tax incurred by a U.K. corporation would be creditable           
          only to the extent that it exceeded the ACT already paid.  By               
          analogy, we conclude that the allocation of the corporate offset            



          8    We note that sec. 1.901-2(e)(4)(ii), Income Tax Regs., is              
          reserved for integrated tax systems.  The inclusion of such                 
          reserved space within the section on multiple levies instead of             
          within the section on subsidies indicates that Treasury must also           
          believe that such systems are closer to multiple levies than                
          subsidies.                                                                  





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