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As effective for, and applicable to, 1984 and 1985, section
1.901-2(e)(3), Income Tax Regs.,9 provides the following rules
for determining the amount of tax paid by a person:
(e) Amount of income tax that is creditable.--
* * * * * * *
(3) Subsidies.--(i) General rule. An amount is
not an amount of income tax paid by a taxpayer to a
foreign country to the extent that–
(A) The amount is used, directly or indirectly, by
the country to provide a subsidy by any means (such as
through a refund or credit) to the taxpayer; and
(B) The subsidy is determined, directly or
indirectly, by reference to the amount of income tax,
or the base used to compute the income tax, imposed by
the country on the taxpayer;
(ii) Indirect subsidies. A foreign country is
considered to provide a subsidy to a taxpayer if the
country provides a subsidy to another person that–
(A) Owns or controls, directly or indirectly, the
taxpayer or is owned or controlled, directly or
indirectly, by the taxpayer or by the same persons that
own or control, directly or indirectly, the taxpayer,
or
(B) Engages in a transaction with the taxpayer,
but only if the subsidy received by such other person
is determined, directly or indirectly, by reference to
the amount of income tax, or the base used to compute
the income tax, imposed by the country on the taxpayer
with respect to such transaction.
9For earlier years an identical provision was found in sec.
4.901-2(f)(3)(ii)(B), Temporary Income Tax Regs., 45 Fed. Reg.
75647 (Nov. 17, 1980). Although amended regulations under sec.
901(i) were issued in 1991, those regulations are not effective
for, or applicable to, petitioner’s 1984 and 1985 taxable years.
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