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amount of the local tax reduced by the pecuniary
benefit or subsidy. * * * [The taxpayer] is not
subject to double taxation because the pecuniary
benefit or subsidy was not paid to the Brazilian
government. This is because the pecuniary benefit or
subsidy operated as a rebate * * * of the local tax, in
effect reducing the tax rate * * *. See Continental,
998 F.2d at 519.
* * * * * * *
The reduction in the local tax rate constituted an
indirect subsidy within the plain language of the
regulation: it is provided to the Brazilian borrower
that engaged in a business transaction with the
taxpayer and is calculated as a specific percentage of
the tax imposed on the payment to the taxpayer.
In Riggs I, we held that (1) the withholding taxes that non-
tax-immune Brazilian borrowers had paid from 1980 through 1986 on
their net loan interest remittances to petitioner were creditable
to petitioner, Riggs I, 107 T.C. at 338-340, and (2) in
determining petitioner’s creditable taxes, the withholding taxes
had to be reduced by the pecuniary benefit that the non-tax-
immune Brazilian borrowers received, id. at 361-363; see also
Norwest Corp. v. Commissioner, supra at 1407-1410; Continental
Ill. Corp. v. Commissioner, supra at 519-520; Nissho Iwai Am.
Corp. v. Commissioner, supra at 775-777. Petitioner did not
appeal the latter holding.
The courts have applied the subsidy provisions of section
1.901-2(e)(3), Income Tax Regs., to repass loans. In such cases,
“when the primary borrower made the interest payment to the
foreign lender, it received the subsidy which it was required to
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