Section of Taxation Publications
  VOL. 53
NO. 3
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Act of State Doctrine Allows Foreign Taxes on "Net Loan" Interest Paid by a Foreign Central Bank to be Credited as a Foreign Tax Credit: Riggs National Corp. v. Commissioner
Mark Vincent Vlasic


In Riggs National Corp. v. Commissioner, the U.S. Court of Appeals for the D.C. Circuit reversed the Tax Court and held that a U.S. bank which received interest payments pursuant to a net loan with the Brazilian Central Bank is entitled to foreign tax credits under section 901 for Brazilian taxes paid on its behalf by the Brazilian Central Bank. The court held that the Brazilian Finance Minister’s ruling ordering the tax-immune Central Bank to pay the tax constituted an “act of state” and was not reviewable by U.S. courts. Accordingly, Riggs could take advantage of the U.S. foreign tax credit even though the Brazilian Central Bank (a tax-immune governmental entity), not Riggs Bank, paid Riggs’s foreign taxes to the Brazilian government.

Part I of this Note provides background on the section 901 foreign tax credit (FTC) and the tax ramifications of a net loan, and summarizes the facts of Riggs. Part II discusses the decisions of both the Tax Court and the D.C. Circuit. Part III analyzes the Circuit Court’s decision. Part IV concludes that Riggs was correctly decided and discusses the ramifications of the D.C. Circuit’s decision.



Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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