Lehman May 11

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UK

1. Lehman Denied $67M In Tax Credits Over UK Deals

   May 8, 2015 | Law360

   By Andrew Scurria
   
   
   A New York federal judge on Friday would not award Lehman Brothers Holdings Inc. bankruptcy administrators $67 million in foreign tax credits, reading a bilateral U.K. treaty to designate stock loan transaction payments from Lehman’s U.K. wing as dividends for U.S. tax purposes.

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Client Attorney Privileged/Attorney Work Product/At Request of Counsel

UK

1. Lehman Denied $67M In Tax Credits Over UK Deals

   May 8, 2015 | Law360

   By Andrew Scurria

   A New York federal judge on Friday would not award Lehman Brothers Holdings Inc. bankruptcy administrators $67 million in foreign tax credits, reading a bilateral U.K. treaty to designate stock loan transaction payments from Lehman’s U.K. wing as dividends for U.S. tax purposes.
   
   In a decision adopting the Internal Revenue Service’s reading of the U.S.-U.K. Double Tax Treaty, U.S. District Judge Richard M. Berman affirmed that Lehman cannot offset U.S. tax payments on its 1999 and 2000 returns based on levies imposed by U.K. authorities on certain so-called substitute dividend payments.
   
   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 the legal issue of whether the 1980 treaty overrides and renders those payments dividends that can’t be claimed as credits, according to the opinion.
   
   Lehman had urged Judge Berman to import the narrower U.S. definition of "dividend" into the treaty, a position the IRS called inconsistent with its unambiguous language.
   
   “Lehman’s interpretation of the several treaty provisions runs contrary to an established canon of construction,” the judge said. “Lehman also inconsistently ‘cherry-picks’ among various provisions of the treaty to achieve a desired (tax) result.”
   
   The decision backed up the government’s decision to disallow the claimed credits under Section 901(k) of the Internal Revenue Code, which precludes shareholders with “an obligation to make a related payment with respect to the stock” from using dividends to reduce tax bills. Under Lehman’s reading, the provision did not apply to the payments at issue.
   
   Judge Berman held a one-day trial in October at which Lehman and the IRS offered dueling testimony from experts on whether the treaty trumped the U.S. dividend definition. Government witness Patricia Brown testified that tax treaties “invariably” contain deviations from domestic tax law that are nonetheless ratified by the Senate.
   
   Once the world's fourth-biggest investment bank, Lehman filed the largest Chapter 11 case in history on Sept. 15, 2008, that became emblematic of the financial crisis, listing assets of $639 billion and debts of $613 billion.
   
   The stock loan transactions at issue allowed Lehman’s brokerage unit, Lehman Brothers Inc., to borrow shares of U.K. corporations from U.S.-based lenders that were in turn lent to U.K. unit Lehman Brothers International (Europe) PLC, which became the record owner of the stock.
   
   Lehman's bankruptcy lawyers filed suit against the IRS in April 2010 seeking a declaration overturning the disallowance of its credits.
   
   Certain of those loans extended over the dates on which the underlying shareholders would collect dividends declared by the stock issuers. LBIE would collect the dividends and make substitute dividend payments to LBI that were passed on to the original lenders the same business day...

   For full story:

   http://www.law360.com/articles/653615/lehman-denied-67m-in-tax-credits-over-uk-deals
   

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