Category: Specific Anti-Avoidance Rules (SAAR)
Specific Anti-Avoidance Rules (SAAR) are typically very targeted legislation that removes or reduces the tax effect of certain transactions. Examples are Interest Limitation Rules, Controlled foreign Companies (CfC), Exit Taxation, Hybrid Mismatch Rules, Diverted Profit Tax, Digital Service Tax.
US vs. Hewlett Packard, November 2017, Court of Appeals, Case No 14-73047
This issue in this case is qualification of an investment as debt or equity. HP bought preferred stock in Foppingadreef Investments, a Dutch company. Foppingadreef Investments bought contingent interest notes, from which FOP’s preferred stock received dividends that HP claimed as foreign tax credits. HP claimed millions in foreign tax credits between 1997 and 2003, then exercised its option to sell its preferred shares for a capital loss of more than $16 million. The IRS characterized the transaction as debt, and denied the tax credits claimed by Hewlett Packard. First the Tax Court and later the Court of Appeal agreed with the tax authorities. The eleven factors considered by the Court when qualifying an investment as debt/equity the names given to the certificates evidencing the indebtedness; the presence or absence of a maturity date; the source of the payments; the right to enforce the payment of ... Continue to full case