Preview Newsletter
Lehman Oct 222
-
Judge Got US-UK Tax Treaty Wrong, Lehman Tells 2nd Circ.
Oct 21, 2015 | Law360
By Caroline Simson
Lehman Brothers Holdings Inc. told the Second Circuit on Tuesday that a federal judge who denied its bankruptcy administrators $67 million in foreign tax credits incorrectly interpreted a treaty with the U.K., saying stock loan transaction payments from Lehman’s U.K. wing can't be considered dividends for U.S. tax purposes.
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
US-UK Tax Treaty
Full Text of Stories Below
-
Judge Got US-UK Tax Treaty Wrong, Lehman Tells 2nd Circ.
Oct 21, 2015 | Law360
By Caroline Simson
Lehman Brothers Holdings Inc. told the Second Circuit on Tuesday that a federal judge who denied its bankruptcy administrators $67 million in foreign tax credits incorrectly interpreted a treaty with the U.K., saying stock loan transaction payments from Lehman’s U.K. wing can't be considered dividends for U.S. tax purposes.
The long-bankrupt investment bank is asking the appeals court to reverse U.S. District Judge Richard M. Berman’s May ruling that it cannot offset U.S. tax payments on its 1999 and 2000 returns based on U.K. levies imposed on substitute dividend payments. In refusing to allow Lehman to claim the tax credits, Judge Berman adopted the IRS' reading of the U.S.-U.K. Double Tax Treaty, holding that the payments in question were dividends for U.S. tax purposes.
But in its appeal brief Tuesday, Lehman told the circuit court the judge should have interpreted the term "dividend" in the treaty by its U.S. definition, not the U.K. definition. Immediately after the provision at issue — which, under the court's May ruling, converts substitute payments into dividends for U.S. tax purposes — the treaty states that where U.S. taxation is concerned, the U.S. definition of the term applies, according to the brief.
Additionally, Lehman argued, Judge Berman's interpretation not only is inconsistent with the plain meaning of the treaty, it conflicts with the Internal Revenue Code. After the treaty went into effect 1980, the U.S. stated in 1983 that substitute payments can't be considered a dividend for U.S. tax purposes. In 1997, Congress enacted regulations limiting foreign tax credits relating to dividends, but it didn't include substitute payments.
"The logical consequence of the district court’s decision, then, is that in 1975 the contracting parties intended to ensure that U.S. [foreign tax credit] limitations that did not yet exist would apply to payments that neither party recognized as 'dividends.' Such prescience is improbable, to say the least," the brief said.
At the time the treaty was signed, the U.K. did not recognize substitute payments as dividends, and the U.S. did not limit foreign tax credits with anything akin to the regulations adopted in 1997, according to the brief.
Lehman also argued that the treaty provides that each country is responsible for taxing its own residents as if the treaty didn't exist, with some exceptions. And the provision at issue isn't among those exceptions, it said.
Attorneys for Lehman declined to comment Wednesday. The government does not comment on pending litigation.
The substitute dividend payments came from onetime U.K. trading subsidiary Lehman Brothers International (Europe) PLC that are not normally treated as dividends under U.S. tax law. The dispute hinged on whether the 1980 treaty overrides and renders those payments dividends that can’t be claimed as credits, according to the May opinion...For full story: http://www.law360.com/articles/716852/judge-got-us-uk-tax-treaty-wrong-lehman-tells-2nd-circ-
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
US-UK Tax Treaty
Full Text of Stories Below
Add recipients
Suggested