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however, for an amount of tax paid by a taxpayer to a foreign
country that is used, directly or indirectly, by the foreign
country to provide a subsidy by any means to the taxpayer. Sec.
1.901-2(e)(3), Income Tax Regs.8
The purpose of the foreign tax credit is to protect against
the double taxation of foreign income. United States v. Goodyear
Tire & Rubber Co., 493 U.S. 132, 139 (1989); Am. Chicle Co. v.
United States, 316 U.S. 450, 451 (1942). As an exemption from
tax, the credit provisions of section 901 are to be strictly
construed. Inland Steel Co. v. United States, 230 Ct. Cl. 314,
677 F.2d 72, 79 (1982); Bank of Am. Natl. Trust & Sav.
Association v. United States, 61 T.C. 752, 762 (1974), affd.
without published opinion 538 F.2d 334 (9th Cir. 1976).
In Riggs I, we determined that the Central Bank was not
required, under Brazilian law, to pay withholding tax on its
interest remittances to petitioner and that the withholding tax
paid by the Central Bank was a noncompulsory payment, rather than
a tax. Thus, we concluded that petitioner was not “legally
liable” for the Central Bank’s withholding tax payments and held
8The position set forth in the regulation regarding
subsidies has been codified in sec. 901(i), which is effective
for foreign taxes paid or accrued in taxable years beginning
after Dec. 31, 1986. Tax Reform Act of 1986, Pub. L. 99-514,
sec. 1204(a), 100 Stat. 2532; Nissho Iwai Am. Corp. v.
Commissioner, 89 T.C. at 777 n.17.
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