Section of Taxation Publications

VOL. 61
NO. 2

Contents | TTL Home


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.

Can a Government Subsidize Itself? The Erosion of a Bright-Line
Rule: PNC Financial Services Group v. Commissioner

Mary Kogut*


The D.C. Circuit’s recent decision in PNC Financial Services Group v. Commissioner ended over 20 years of doubt regarding PNC’s claim to a foreign tax credit arising from a lending transaction with the Brazilian Central Bank. In bringing the saga to a close, the D.C. Circuit held that PNC’s foreign tax credit could not simply equal the amount of interest income tax paid by the Brazilian Central Bank on behalf of PNC. Rather, because the Brazilian government had issued a tax subsidy based on PNC’s interest income tax to the Brazilian Central Bank, PNC had received an indirect subsidy. Therefore, PNC was entitled to a foreign tax credit only to the extent the tax exceeded the indirect subsidy.

Part I of this Note introduces the foreign tax credit, Brazil’s Pecuniary Benefit System, and repass loan transactions and outlines the case law that forms the prelude to PNC Financial. Part II summarizes the D.C. Circuit’s decision in PNC Financial. Part III challenges the D.C. Circuit’s reasoning as endangering the policy and efficiency safeguards intended by the bright-line rule of Regulation section 1.901-2(e)(3) (the subsidy regulation).


Published by the
American Bar Association Section of Taxation
in Collaboration with the
Georgetown University Law Center


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