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comptroller, petitioner’s International Division reported that a
total foreign tax credit of $22,714.14 (equal to 60 percent of the
25-percent withholding tax imposed on the grossed-up interest
payments) should be claimed by petitioner for the Central Bank’s
withholding tax payments on petitioner’s behalf on the Central
Bank’s September 27, 1985, phase II CGA, tranche I through tranche
VII interest remittances to petitioner. This February 20, 1986,
memorandum stated, in pertinent part:
Re: Tax Receipts - Borrower: Banco Central do Brasil
Country: Brazil
Tax Rate: 60% of 25% grossed up
* * * * * * *
Attached are withholding receipts as follows:
Period Of Interest Principal Interest Withholding Tax Exchange
From To US $ US $ US Cruzeiros Rate
6-28-85 9-27-85 (Tranche I) $613,333.00 $17,441.66 $3,488.25 27,111,316.30 $7,772.00
6-28-85 9-27-85 (Tranche II) 613,333.00 17,441.66 3,488.25 27,111,316.30 7,772.00
6-28-85 9-27-85 (Tranche III) 613,334.00 17,441.69 3,488.33 27,111,362.93 7,772.00
6-28-85 9-27-85 (Tranche IV) 540,000.00 15,326.25 3,071.25 23,869,755.00 7,772.00
6-28-85 9-27-85 (Tranche V) 533,725.61 15,177.82 3,035.56 23,592,403.40 7,772.00
6-28-85 9-27-85 (Tranche VI) 540,000.00 15,356.25 3,071.25 23,869,755.00 7,772.00
6-28-85 9-27-85 (Tranche VII) 540,000.00 15,356.25 3,071.25 23,869,755.00 7,772.00
Total Tax Withheld 22,714.14
As a result (as will be discussed more fully infra),
petitioner, on its tax returns, reduced by 40 percent (for the
“pecuniary benefit” that petitioner mistakenly believed the Central
Bank had received) the foreign tax credits it claimed with respect
to all of the Central Bank’s restructuring debt interest remittances
to it from July 1985 through January 1987. Specifically, in two
separate memoranda (each dated March 30, 1987) to petitioner’s
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