Court Opinion

ID: 4628785
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:04:02.241084+00
Date Added: 2024-06-11T07:57:15.942695
License: Public Domain

COMPAQ COMPUTER CORPORATION AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentCompaq Computer Corp. v. CommissionerNo. 24238-96United States Tax Court113 T.C. 363; 1999 U.S. Tax Ct. LEXIS 52; 113 T.C. No. 25; November 18, 1999, Filed *52  An appropriate order will be issued.  H, a U.K. corporation, paid a dividend to P, its   U.S. parent. Upon payment of the dividend, H, pursuant   to the law of the United Kingdom, became liable for and   paid advance corporation tax (ACT) and became entitled   to a credit against its U.K. corporate tax. H   allocated the U.K. credit to its two wholly owned   subsidiaries, S1 and S2, which used the U.K. credit   against their respective mainstream corporate tax   liabilities.  Pursuant to I.R.C. sec. 901(a), P claimed   a foreign tax credit for the ACT paid by H.     HELD: Pursuant to Article 23(c)(1) of the U.S.-   U.K. Convention, the payor of the ACT is the   corporation that pays the dividend and corresponding   ACT and not the corporation that uses the corresponding   U.K. credit against its U.K. tax liability.   Accordingly, P is entitled to claim a foreign tax   credit pursuant to I.R.C. sec. 901(a) for the ACT paid   by H. HELD, FURTHER, the U.K. credit allocated by H to   S1 and S2 and used by them against their U.K. tax is   not a subsidy within the meaning of I.R.C. sec. 901(i).  Mark A. Oates, John M. Peterson, Jr., James M. O'Brien, OwenP. Martikan, Paul E. Schick, Robert *53 S. Walton, Tamara L.Frantzen, Erika S. Schechter, Allen Duane Webber, David A.Waimon, Lafayette G. Harter, III, and Steven M. Surdell, forpetitioners.Allan E. Lang, Sandra K. Robertson, and Barbara A. Kelker,for respondent.  Wells, Thomas B.WELLS*363  OPINIONWELLS, JUDGE: In the instant case, the parties filed cross-motions for summary judgment pursuant to Rule 121(a).  1 The issue 2*54  presented by the parties' summary judgment motions is whether Compaq Computer Corp. (petitioner) is *364  entitled to foreign tax credits pursuant to section 901(a) for certain U.K. advance corporation tax (ACT) payments.  3Summary judgment may be granted if the pleadings and other materials demonstrate that no genuine issue exists as to any material fact and that a decision may be rendered as a matter of law. See Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518">98 T.C. 518, 520 (1992), affd.  17 F.3d 965">17 F.3d 965 (7th Cir. 1994). The record shows and the parties do not dispute that there is no genuine issue as to any material fact. Accordingly, we may render judgment on the issue in the instant case as a matter of law. See Rule 121(b).BACKGROUNDPetitioner is a Delaware corporation with its principal place of business in Houston, Texas. Petitioner owns 100 percent of the issued and outstanding stock of Compaq Computer Group, *55 Ltd. (Compaq U.K.), a corporation organized and existing under the laws of the United Kingdom. Compaq U.K. owns 100 percent of the issued and outstanding stock of Compaq Computer Manufacturing, Ltd. (CCML), and Compaq Computer, Ltd. (CCL) (hereinafter we will sometimes refer to CCML and CCL collectively as the U.K. Subs.), which are corporations organized and existing under the laws of the United Kingdom.During 1992, a corporation that resided in the United Kingdom was required to pay tax to the United Kingdom at the rate of 33 percent on its corporate income (mainstream tax). See Finance (No. 2) Act, 1992, sec. 21. Additionally, a corporation that paid a dividend to its shareholders was obligated to pay to the United Kingdom ACT. See Income and Corporation Taxes Act, 1988, sec. 14(1) (Eng.)Generally, upon payment of the ACT, a U.K. corporation becomes entitled to a credit against mainstream tax equal to the amount of the ACT (corporate offset). See id. sec. 239(1). If the corporate offset exceeds the amount of the corporation's mainstream tax, the corporation can carry the corporate offset back 6 years or forward indefinitely. See id. sec. 239(3) and (4). A corporation that cannot *56 use the corporate *365  offset in the current year, rather than carrying the corporate offset back or forward, can elect to allocate the corporate offset to one or more of its controlled subsidiaries. 4 See id. sec. 240 (1) One exception to the general terms of the ACT is that a corporation is not required to pay ACT on "franked investment income", which is a distribution on which ACT has already been paid. Id. secs. 238(1), 241(1). Additionally, if a controlled subsidiary makes a distribution to a parent, the parties can elect whether the subsidiary will pay ACT on the distribution or the parent will pay ACT on subsequent distributions of such funds. See id. sec. 247 (4)Additionally, a U.K. shareholder, upon receipt of the dividend, becomes entitled to a credit (shareholder credit) against its individual taxes. The shareholder credit is a portion of the ACT paid by the corporation. See id. sec. 231(1) Absent a treaty provision to the contrary, the shareholder credit is not available to nonresidents of the United Kingdom. See *57 id.The United States and the United Kingdom entered into the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains and Three Protocols, Dec. 31, 1975-Mar. 15, 1979, U.S.-U.K.,  31 U.S.T. (Part 6) 5668, T.I.A.S. 9682 (U.S.-U.K. Convention). Article 10 of the U.S.-U.K. Convention, 31 U.S.T. at 5677, provides that shareholders owning more than 10 percent of the outstanding stock of a U.K. corporation are entitled to a payment of one-half of the shareholder credit to which an individual U.K. resident shareholder would have been entitled. Shareholders owning less than 10 percent of the outstanding stock of a U.K. corporation are entitled to a payment of the full amount of the shareholder credit to which an individual U.K. resident shareholder would have been entitled.  5*58 *366   During 1992, Compaq U.K. declared and paid a dividend of GBP 11,800,000 to petitioner. As a result of paying the dividend, *59 Compaq U.K. became liable for and paid ACT in the amount of GBP 3,933,333. Upon payment of the ACT, Compaq U.K. became entitled to a corporate offset against its mainstream corporate income tax. Additionally, pursuant to Article 10 of the U.S.-U.K. Convention, petitioner became entitled to a payment from the United Kingdom equal to one-half of the shareholder credit to which an individual shareholder resident of the United Kingdom would have been entitled.Compaq U.K. surrendered the corporate offset to the U.K. Subs. instead of using it against Compaq U.K. tax. The U.K. Subs. used the corporate offset to reduce their 1992 U.K. mainstream tax liability. The U.K. Subs. did not pay any dividends during 1992.Petitioner, pursuant to Rev. Proc. 80-18, 1 C.B. 623">1980-1 C.B. 623, modified by Rev. Proc. 81-58, 2 C.B. 678">1981-2 C.B. 678; and Rev. Proc. 84-60, 2 C.B. 504">1984-2 C.B. 504, and amplified and clarified by Rev. Proc. 90-61, 2 C.B. 657">1990-2 C.B. 657, did not claim a foreign tax credit for the unrefunded portion of the ACT paid by Compaq U.K. Following the opinion of the U.S. Court of Appeals for the Federal Circuit in Xerox Corp. v. United States, 41 F.3d 647">41 F.3d 647 (Fed. Cir. 1994), revg.  14 Cl. Ct. 455">14 Cl. Ct. 455 (1988), petitioner made *60 an informal claim for refund for additional foreign tax credits for the ACT payment. Respondent disallowed the refund.DISCUSSIONSection 901(a) allows a domestic corporation to claim a foreign tax credit for taxes "deemed to have been paid under sections 902 and 960." Section 902 provides, inter alia:*367         SEC. 902. DEEMED PAID CREDIT WHERE DOMESTIC            CORPORATION OWNS 10 PERCENT OR MORE OF            VOTING STOCK OF FOREIGN CORPORATION.     (a) Taxes Paid by Foreign Corporation Treated as   Paid by Domestic Corporation. -- For purposes of this   subpart, a domestic corporation which owns 10 percent   or more of the voting stock of a foreign corporation   from which it receives dividends in any taxable year   shall be deemed to have paid the same proportion of   such foreign corporation's post-1986 foreign income   taxes as --         (1) the amount of such dividends     (determined without regard to section 78),     bears to        (2) such foreign corporation's post-1986     undistributed earnings.     (b) Deemed Taxes Increased in Case of Certain 2nd   and 3rd Tier Foreign Corporations. --        (1) 2nd tier. -- If the foreign     corporation described in subsection (a)     (hereinafter *61 in this section referred to as     the "1st tier corporation") owns 10-percent     or more of the voting stock of a 2nd foreign     corporation from which it receives dividends     in any taxable year, the 1st tier corporation     shall be deemed to have paid the same     proportion of such 2nd foreign corporation's     post-1986 foreign income taxes as would be     determined under subsection (a) if such 1st     tier corporation were a domestic corporation.The parties disagree as to which corporation is the payor of the ACT and, consequently, disagree as to whether section 902(a)  or 902(b) applies to the dividend received by petitioner during 1992. Petitioners contend that, for foreign tax credit purposes, the payor of the ACT is the corporation that pays the dividend and the corresponding ACT. Petitioners further contend that the subsequent use or allocation of the corporate offset is irrelevant. Petitioners, therefore, argue that they are entitled to a foreign tax credit under section 902(a) because, during 1992, petitioner received a dividend from a 10-percent-owned subsidiary that paid taxes to a foreign government during 1992.Respondent disagrees with petitioners' contentions *62 and argues that, for purposes of the foreign tax credit, the payor of the ACT is the corporation that uses the corporate offset. Accordingly, respondent argues that the U.K. Subs., rather than Compaq U.K., must be viewed as the payors of the ACT in 1992. Respondent further argues that, because the U.K. Subs. did not pay a dividend to Compaq U.K. during 1992, no portion of the ACT paid by the U.K. Subs. can be attributed, pursuant to section 902(b), to the dividend distributed in 1992 by Compaq U.K. to petitioner.*368  To support their respective positions, both parties rely on Article 23 of the U.S.-U.K. Convention, which addresses the foreign tax credit treatment of the ACT. The relevant portion of Article 23 of the U.S.-U.K. Convention, 31 U.S.T. at 5685, provides:               ARTICLE 23          ELIMINATION OF DOUBLE TAXATION     (1) In accordance with the provisions and subject   to the limitations of the law of the United States (as   it may be amended from time to time without changing   the general principle hereof), * * * in the case of a   United States corporation owning at least 10 per cent   of the voting stock of a corporation which is a   resident of the United Kingdom from *63 which it receives   dividends in any taxable year, the United States shall   allow credit for the appropriate amount of tax paid to   the United Kingdom by that corporation with respect to   the profits out of which such dividends are paid. Such   appropriate amount shall be based upon the amount of   tax paid to the United Kingdom, but the credit shall   not exceed the limitations (for the purpose of limiting    the credit to the United States tax on income from   sources outside of the United States) provided by   United States law for the taxable year. For the   purposes of applying the United States credit in   relation to tax paid to the United Kingdom:        *    *    *    *    *    *    *        (c) that amount of tax credit referred     to in paragraph (2)(a)(i) of Article 10     (Dividends) which is not paid to the United     States corporation but to which an individual     resident in the United Kingdom would have     been entitled had he received the dividend     shall be treated as an income tax imposed on     the United Kingdom corporation paying the     dividend.Petitioners argue that the last sentence of Article 23(1)(c) specifically designates the unrefunded portion *64 of the ACT as an income tax imposed on the corporation paying the dividend. Respondent, on the other hand, argues that such language was intended only to designate the taxpayer as the foreign corporation paying the dividend, as opposed to the domestic corporation receiving the dividend.In Xerox Corp. v. United States, 14 Cl. Ct. 455">14 Cl. Ct. 455 (1988), the U.S. Claims Court was presented with the same issue presented in the instant case. In Xerox, a first-tier U.K. subsidiary corporation paid a dividend to its U.S. parent corporation and allocated the corporate offset to second-tier U.K. subsidiary corporations. See id. at 460-461. The U.S. parent corporation claimed a foreign tax credit for the unrefunded portion of the ACT paid by the first-tier subsidiary. See id. The Claims Court found that the language of the U.S.-U.K. *369  Convention did not support the taxpayer's contentions that the ACT paid by the first-tier subsidiary was creditable to the parent corporation without regard to the subsequent allocation of the corporate offset. See id. at 462. Rather, the Claims Court looked to the Technical Explanation of the U.S.-U.K. Convention (Technical Explanation), 1 C.B. 455">1980-1 C.B. 455, Rev. Proc. 80-18, 1 C.B. 623">1980-1 C.B. 623, *65 and the Competent Authority Agreement which resulted from the exchange of correspondence between Mr. P.W. Fawcett and Mr. P.E. Coates pursuant to Article 25 of the U.S.-U.K. Convention to determine the intent of the parties negotiating the U.S.-U.K. Convention. See id. at 463-466. The Claims Court found that the intention of the parties negotiating the U.S.-U.K. Convention was to treat the ACT as a separate tax only until the corporate offset was used; thereafter, the ACT must be viewed as subsumed into the mainstream tax. See id. at 467-468. The Claims Court further held that once a corporation allocated the corporate offset to its subsidiary, the subsidiary was to be considered the payor of the ACT for foreign tax credit purposes. See id. at 468.On appeal, the U.S. Court of Appeals for the Federal Circuit reversed the Claims Court. The Court of Appeals held that the language of the U.S.-U.K. Convention was clear and allowed a foreign tax credit for the unrefunded portion of the ACT without regard to the use of the corporate offset. See Xerox Corp. v. United States, 41 F.3d at 660. The Court of Appeals also noted that various statements made by parties negotiating the treaty supported *66 its reading of the treaty language. See  id. at 654. As discussed in further detail below, we agree with the holding of the Court of Appeals for the Federal Circuit that the plain meaning of the treaty language provides that the payor of the ACT is the corporation that pays the dividend and the corresponding ACT, and that the subsequent use or allocation of the corporate offset does not alter this conclusion.Regarding the interpretation of treaties, the Supreme Court has stated that "[T]reaties are the subject of careful consideration before they are entered into, and are drawn by persons competent to express their meaning and to choose apt words in which to embody the purposes of the high contracting parties." Rocca v. Thompson, 223 U.S. 317">223 U.S. 317, 332, 56 L. Ed. 453">56 L. Ed. 453, 32 S. Ct. 207">32 S. Ct. 207 (1912). Consequently, "The clear import of treaty language *370  controls unless 'application of the words of the treaty according to their obvious meaning effects a result inconsistent with the intent or expectations of its signatories.'" Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176">457 U.S. 176, 180, 72 L. Ed. 2d 765">72 L. Ed. 2d 765, 102 S. Ct. 2374">102 S. Ct. 2374 (1982)  (quoting Maximov v. United States, 373 U.S. 49">373 U.S. 49, 54, 10 L. Ed. 2d 184">10 L. Ed. 2d 184, 83 S. Ct. 1054">83 S. Ct. 1054 (1963)).In *67 the instant case, we conclude that the clear import of the language of the U.S.-U.K. Convention favors petitioners' position. The treatment of the ACT shareholder credit was an important issue resolved by the U.S.-U.K. Convention. See S. Exec. Rept. 95-18, at 2 (1978), 1 C.B. 411">1980-1 C.B. 411, 412 ("Of particular significance are the new provisions contained in the proposed treaty (1) which provide for a refund by the U.K. to U.S. portfolio and direct shareholders receiving dividends from British corporations of Advance Corporation Tax (ACT) paid by the distributing corporation (Article 10) and allow a U.S. foreign tax credit for the one-half of the ACT which is not refunded to U.S. direct corporate investors (Article 23)"). As the corporate offset is an important facet of the ACT regime, we believe that, had the high contracting parties intended for the shareholder credit to be linked to the corporate offset, Article 23(1)(c) would have specifically provided for such a link. The high contracting parties, however, chose to treat the ACT as imposed on "the corporation paying the dividend", and we adhere to that language in our interpretation of the treaty.Moreover, we find that the general *68 structure of the U.S.- U.K. Convention evidences the signatories' intent not to link the availability of the shareholder credit to the corporate offset. Pursuant to Article 10(2), the United Kingdom is required to refund or pay to a 10-percent U.S. shareholder one-half of the ACT to which an individual U.K. resident shareholder would have been entitled. Such a refund is available to the 10-percent U.S. shareholder regardless of the use the U.K. corporation makes of the corporate offset.Respondent argues that the U.S.-U.K. Convention is silent with respect to situations where the corporate offset is allocated to a subsidiary, and, therefore, the identity of the payor of the ACT must be resolved pursuant to the first sentence of Article 23(1): "In accordance with * * * the law of the United States". That law, respondent contends, is contained in the Technical Explanation. *371 The Technical Explanation, although it does not address the issue of the allocation of the corporate offset, states:     ACT which reduces mainstream tax in any year or   years shall be attributable to any accumulated profits   of the year or years for which the mainstream tax is   reduced. Where ACT is used to offset *69 mainstream tax,   the offset will be viewed as a refund of the ACT   initially allowed as a credit and as a tax paid in   respect of the year for which the ACT is applied as an   offset. Consequently, a reduction in the foreign tax   credit for the year from which the ACT is carried must   be made in accordance with section 905(c) of the Code.   [Technical Explanation, 1980-1 C.B. at 473.]The Technical Explanation's view of the ACT, as a tax, originally imposed but then refunded, upon the use of the corporate offset, is the basis of Rev. Proc. 80-18, 1980-1 C.B. at 625, which, in turn, states in relevant part:     Paragraph 1(c) of Article 23 provides, in   addition, that the one-half of the ACT paid by a United   Kingdom corporation that is not refunded to a U.S.   direct investor and that would be credited or refunded   to a United Kingdom individual resident is treated as   an income tax imposed on the distributing United   Kingdom corporation (rather than the U.S. shareholder).   Under United Kingdom law, a United Kingdom corporation   that pays ACT may, however, transfer to a related   United Kingdom corporation the right to apply ACT   against mainstream tax liability. Thus, *70 for example, a   United Kingdom subsidiary of a United Kingdom   corporation may benefit from the parent's ACT payment   by offsetting part or all of the ACT against its own   liability for United Kingdom mainstream tax. In such a   case, for U.S. foreign tax credit purposes and pursuant   to Article 23, the parent corporation has not paid or   accrued the unrefunded ACT offset against the   subsidiary's mainstream tax and has contributed to the   capital of the subsidiary an amount equal to the   unrefunded ACT offset. The subsidiary is considered to   have paid or accrued only mainstream tax paid or   accrued in excess of the ACT offset, plus the amount of   unrefunded ACT so offset.According to respondent, the allocation of the corporate offset to a subsidiary must be viewed as a capital contribution of the unrefunded ACT from the parent to the subsidiary and, at such time as the subsidiary applies the offset against its own liability for mainstream tax, payment by the subsidiary of the unrefunded portion of the ACT.The Technical Explanation was not available to both contracting parties in the negotiation of the U.S.-U.K. Convention. Rather, it was prepared by the Department of *71 the Treasury (Treasury) to aid Congress during the ratification process in understanding the U.S.-U.K. Convention. *372  With regard to the Technical Explanation's approach to the ACT, S. Exec. Rept. 95-18, supra at 36-37, 1980-1 C.B. at 429, states:     The Treasury's technical explanation also set   forth a complex set of rules and examples intended to   be used for purposes of determining the earnings to   which ACT payments by a U.K. corporation are to be   attributed for purposes of computing the indirect U.S.   foreign tax credit.       *    *    *    *    *    *    *   These rules raise difficult and complex issues. In   recommending the ratification of the proposed treaty,    the Committee does not intend that these rules   necessarily serve as a model for future treaties.   Further, in recommending the ratification of the   treaty, the Committee does not intend to adopt or   reject the amplifications of the foreign tax credit   rules contained in the Treasury technical explanation.   * * *As to the Technical Explanation, the Court of Appeals for the Federal Circuit, in Xerox Corp. v. United States, 41 F.3d at 655-656, commented: "One may debate the meaning of this cool treatment *72 of the Technical Explanation. What is clear, however, is that the Treasury's position was not embraced by the Senate." In the same vein, it is well established that a revenue procedure is not a law binding upon the Court but is merely a statement of the Commissioner's position. See Helvering v. New York Trust Co., 292 U.S. 455">292 U.S. 455, 468, 78 L. Ed. 1361">78 L. Ed. 1361, 54 S. Ct. 806">54 S. Ct. 806 (1934); Casanova Co. v. Commissioner, 87 T.C. 214">87 T.C. 214, 223 (1986). Accordingly, we conclude that neither the Technical Explanation nor  Rev. Proc. 80- 18, supra, is to be considered "the law of the United States" for the purposes of the first sentence of Article 23(1) of the U.S.-U.K. Convention. Consequently, we hold that they present no reason for us to deviate from the intention of the high contracting parties as evidenced by the structure of the U.S.-U.K. Convention and by the plain meaning of the language of Article 23(c)(1).  6*73 Moreover, despite respondent's contentions to the contrary, we conclude that it is proper to consider the proposition that the corporation that pays the dividend and the corresponding *373  ACT is the payor of the ACT for purposes of the foreign tax credit as being "In accordance with the provisions and subject to the limitations of the law of the United States." In Biddle v. Commissioner, 302 U.S. 573">302 U.S. 573, 82 L. Ed. 431">82 L. Ed. 431, 58 S. Ct. 379">58 S. Ct. 379, 382-383 (1938), the Supreme Court articulated the rule that, for U.S. foreign tax credit purposes, the taxpayer is the party who is liable for and charged with the payment of tax. That mandate has been incorporated into the regulations at section 1.901-2(f)(1), Income Tax Regs. In the instant case, the ACT is levied on the corporation that pays the dividend, regardless of whether that corporation or its subsidiary will make *74 use of the corporate offset. Accordingly, it is appropriate to consider the corporation that actually pays the dividend, and that is liable for payment of the ACT, as the payor of the ACT for foreign tax credit purposes regardless of the use of the corresponding U.K. credit.  7*75  Lastly, respondent contends that, notwithstanding the treaty provisions, a foreign tax credit is not available to petitioner because use of the corporate offset by the U.K. Subs. results in a subsidy within the meaning of section 901(i). The relevant parts of section 901(i) provide:     SEC. 901(i).  Taxes Used to Provide Subsidies. --   Any income, war profits, or excess profits tax shall   not be treated as a tax for purposes of this title to   the extent --        (1) the amount of such tax is used (directly     or indirectly) by the country imposing such tax to     provide a subsidy by any means to the taxpayer, a     related person (within the meaning of section     482), or any party to the transaction or to a     related transaction, and        (2) such subsidy is determined (directly or     indirectly) by reference to the amount of such     tax, or the base used to compute the amount of     such tax.Section 1.901-2(e), Income Tax Regs., provides that a subsidy could include a credit provided to the taxpayer or to a related party.  Section 1.901-2(e)(ii), Income Tax Regs., however, further *374  explains: "The term 'subsidy' includes any benefit conferred, directly or indirectly, *76 by a foreign country to one of the parties enumerated in paragraph (e)(3)(i)(A) of this section. Substance and not form shall govern in determining whether a subsidy exists."Section 1.901-2(e)(4), Income Tax Regs., discusses the treatment of multiple levies, which are not considered subsidies, and provides: 8     (4) Multiple levies -- (i) In general.  If, under   foreign law, a taxpayer's tentative liability for one   levy (the "first levy") is or can be reduced by the   amount of the taxpayer's liability for a different levy   (the "second levy"), then the amount considered paid by   the taxpayer to the foreign country pursuant to the   second levy is an amount equal to its entire liability   for that levy, and the remainder of the amount paid is   considered paid pursuant to the first levy. This rule   applies regardless of whether it is or is not likely   that liability *77 for one such levy will always exceed   liability for the other such levy. * * *We do not disagree with the regulation's prescription that substance rather than form controls the determination of whether a credit is a subsidy. Accordingly, we conclude that, under the rules of section 1.901-2(e)(4), Income Tax Regs., the ACT is comparable to a second levy, and the U.K. mainstream tax is comparable to a first levy. The amount paid by a corporation to the United Kingdom as ACT is therefore fully creditable, and the mainstream tax incurred by a U.K. corporation would be creditable only to the extent that it exceeded the ACT already paid. By analogy, we conclude that the allocation of the corporate offset to a subsidiary corporation reduces the amount of the subsidiary corporation's mainstream tax which would be creditable but does not act as a subsidy.Additionally, we are unable to conclude that the corporate offset is the type of benefit which was intended to be covered by the subsidy rules of section 901(i). The House of Representatives Committee on Ways and Means in H. Rept. 99-426, at 351 (1985), 1986-3 C.B. (Vol. 2) 1,351, explained the reason for the enactment of section 901(i) as *78 follows:*375       As indicated above, a Treasury regulation denies a   foreign tax credit for foreign taxes used directly or   indirectly as a subsidy to the taxpayer. Absent this   rule, the U.S. Treasury would, in effect, bear the cost   of tax subsidy programs instituted by foreign countries   for the direct or indirect benefit of their residents   and certain nonresidents who do business with their   residents. The committee is informed that some U.S.   lenders and other U.S. taxpayers take tax return   positions that are inconsistent with this rule. The   committee does not believe that foreign tax credits   should be allowed for foreign taxes which, while   ostensibly imposed, are effectively rebated by the   levying country by means of a government subsidy to the   taxpayer, a related party, or a party to a transaction   with the taxpayer. To eliminate any uncertainty in   this area, the committee believes that the Treasury   regulation disallowing foreign tax credits for taxes   used as a subsidy to the taxpayer should be codified.In the instant case, the U.S. Treasury does not bear the cost of ACT corporate offset. To the contrary, to the extent that the ACT corporate offset reduces *79 the mainstream tax of a U.K. corporation, a U.S. taxpayer will be entitled to a lower foreign tax credit with respect to the mainstream tax. Accordingly, allowing a foreign tax credit for the ACT paid by a first-tier subsidiary, even if that corporation allocates the corporate offset to one of its subsidiaries, results in no extra burden upon the U.S. Treasury.On the basis of the foregoing analysis, we hold that, pursuant to Article 23(c)(1) of the U.S.-U.K. Convention, the payor of the ACT is the corporation that pays the dividend and the corresponding ACT, regardless of that corporation's use of the corporate offset or allocation of that offset to one of its subsidiaries. 9*80  Accordingly, section 902(a) applies to the dividend received by petitioner in 1992. Petitioner, therefore, is entitled to a foreign tax credit under section 901(a) for the payment of the ACT. We have considered the parties' remaining arguments and find them irrelevant or unnecessary to reach.*376  To reflect the foregoing, and the prior opinions in the instant case,An appropriate order will be issued.  Footnotes1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for 1992, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩2.  The instant case involves several issues for which the parties filed separate briefs. In an opinion issued July 2, 1999, we addressed the issue of whether income relating to printed circuit assemblies should be reallocated under sec. 482 to petitioner from its Singapore subsidiary for its 1991 and 1992 fiscal years. See Compaq Computer Corp. & Subs. v. Commissioner, T.C. Memo 1999-220">T.C. Memo. 1999-220. In an opinion issued Sept. 21, 1999, we addressed the issue of whether a foreign tax credit resulting from certain ADR transactions should be allowed. See Compaq Computer Corp. & Subs. v. Commissioner, 113 T.C. No. 25">113 T.C. No. 25↩ (1999).3.  The ACT was first introduced by the Finance Act, 1972. The Income and Corporation Taxes Act, 1988, which was in effect during the year in issue, made only minor changes with respect to the ACT. The ACT was abolished, effective for distributions after Apr. 1, 1999, by the Finance Act, 1998, sec. 31.↩4. A subsidiary is controlled if the parent corporation owns more than 51 percent of the outstanding stock. See Income and Corporation Taxes Act, 1988, sec. 240(10).↩5. The relevant parts of Article 10 of the U.S.-U.K. Convention provide:               Article 10               Dividends     (2) As long as an individual resident in the   United Kingdom is entitled under United Kingdom law to   a tax credit in respect of dividends paid by a   corporation which is resident in the United Kingdom,   paragraph (1) of this Article shall not apply.  * * *        (a) In the case of dividends paid by a     corporation which is a resident of the United     Kingdom:          (i) to a United States        corporation which either alone or        together with one or more        associated corporations controls,        directly or indirectly, at least 10        per cent of the voting stock of the        corporation which is a resident of        the United Kingdom paying the        dividend, the United States        corporation shall be entitled to a        payment from the United Kingdom of        a tax credit equal to one-half of        the tax credit to which an        individual resident in the United        Kingdom would have been entitled        had he received the dividend,        subject to the deduction withheld        from such payment and according to        the laws of the United Kingdom of        an amount not exceeding 5 per cent        of the aggregate of the amount or        value of the dividend and the        amount of the tax credit paid to        such corporation;↩6. Respondent has argued alternatively that the signatories to the U.S.-U.K. Convention intended to link the shareholder credit to the corporate offset and that such intent is evidenced in the positions taken by the Technical Explanation, Rev. Proc. 80-18, 1980- 1 C.B. 623, and the Competent Authority Agreement. We note that those documents were created after the negotiation of the U.S.-U.K. Convention and that only Rev. Proc. 80-18↩, supra, directly discusses the corporate offset. Accordingly, we are unpersuaded that the high contracting parties intended a result contrary to the clear language and structure of the U.S.-U.K. Convention.7. Respondent has further argued that, by disregarding the corporate offset in determining the payor of the ACT for foreign tax credit purposes, a U.K. corporation which is a subsidiary of a U.S. corporation could, theoretically, receive a dividend from one of its 10th-level subsidiaries. Pursuant to the Income and Corporation Taxes Act, 1988, sec. 247, that 10th-level subsidiary could choose not to pay ACT on that dividend. The U.K. subsidiary could then in turn remit that dividend to its U.S. parent, pay the ACT, and allocate the corporate offset to the 10th-level subsidiary. The U.S. parent could then claim a foreign tax credit for the ACT paid by its U.K. subsidiary, notwithstanding that, had the ACT been paid by the 10th- level subsidiary, the ACT would not be creditable pursuant to the limitation of sec. 902(b). Respondent's hypothetical is not based upon the facts of the instant case, and we decline to rule on it.8. We note that sec. 1.901-2(e)(4)(ii), Income Tax Regs.↩, is reserved for integrated tax systems. The inclusion of such reserved space within the section on multiple levies instead of within the section on subsidies indicates that Treasury must also believe that such systems are closer to multiple levies than subsidies.9. We have been able to ascertain the intent of the signatories from the plain meaning of the language of Article 23 as well as from the structure of the U.S.-U.K. Convention itself. Consequently, we have not relied on extraneous statements made by the various parties to the treaty negotiations and attached to petitioners' motion.