Debt vs. equity implications for foreign tax credits | KPMG | GLOBAL

Ninth Circuit: Debt vs. equity implications for foreign tax credits

Debt vs. equity implications for foreign tax credits

The U.S. Court of Appeals for the Ninth Circuit today affirmed a decision of the U.S. Tax Court, finding that the taxpayer’s transaction was debt, and as such, could not be treated as equity for which the taxpayer could have claimed foreign tax credits.

1000

Related content

The case is: Hewlett-Packard Co. v. Commissioner, No, 14-73047 (9th Cir. November 9, 2017). Read the Ninth Circuit’s decision [PDF 99 KB]

The taxpayer bought preferred stock in a Dutch company. The Dutch company bought contingent interest notes, from which its preferred stock received dividends that the taxpayer claimed as foreign tax credits between 1997 and 2003, and then exercised its option to sell its preferred shares for a capital loss of more than $16 million. 

The Tax Court characterized the transaction as debt, and thus upheld the tax deficiency related to the foreign tax credits. 

The Ninth Circuit concluded that the Tax Court did not err in finding the taxpayer’s investment was best characterized as debt and affirmed. The Ninth Circuit also upheld a determination that the taxpayer’s purported capital loss was “really a fee paid for a tax shelter” which could not be deducted.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit