U.S. Court of Appeals for the Second Circuit

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Second Circuit upholds use of economic substance doctrine to override foreign tax credits

September 09, 2015

The Second Circuit affirmed the tax court’s ruling that the “economic substance doctrine” allowed it to deny foreign tax credits claimed by taxpayers on certain international loan products called Structured Trust Advantaged Repackaged Securities (“STARS”).

U.S. Chamber urges Second Circuit to reverse use of economic substance doctrine to override foreign tax credits

June 16, 2014

In its brief, the U.S. Chamber asked the Second Circuit to reverse the Tax Court's ruling which adopted a broad interpretation of the judge-made “economic substance doctrine” to override the foreign tax credit provisions of the Internal Revenue Code, and (in conflict with the Fifth and Eighth Circuits) improperly reclassified foreign taxes as non-tax “costs.” The brief argued that The Tax Court’s broad treatment of the economic substance doctrine is particularly inappropriate in the specific context of the tax benefit at issue here—a foreign tax credit. Congress has expressed a clear intent to protect companies earning foreign income from double taxation on that income. The brief points out that the decisions of the Fifth and Eighth Circuits were correct, and this Court should follow those decisions to avoid creating nationwide uncertainty in this important area of tax law.

Scott P. Martin and Geoffrey C. Weien of Gibson, Dunn & Crutcher LLP represented the U.S. Chamber as co-counsel to the National Chamber Litigation Center in this case.

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