Santander Holdings USA, Inc. v. United States

Pursuant to the Internal Revenue Code, taxpayers receive credits against owed U.S. income tax for money paid to a foreign country for “taxable international business transactions of economic substance.” Some banks have engaged in transactions that generate a foreign tax credit in order to take advantage of the U.S. deductions. In this case, the IRS began disallowing the claim for foreign tax credits sought by Sovereign Bancorp, Inc., later acquired by Santander Holdings USA, Inc. (together, Sovereign), a U.S. taxpayer, and, in 2008, began imposing accuracy-related penalties. Sovereign brought suit to obtain a refund from the IRS, the amount of which was approximately $234 million in taxes, penalties, and interest. The transaction at issue complied on its face with then-existing U.S. statutory and regulatory requirements. The government opposed the refund, arguing that the transaction failed the common law economic substance test. The district court awarded summary judgment to Sovereign, concluding that the transactions had economic substance. The First Circuit reversed, holding that the government was entitled to summary judgment in its favor as to the economic substance of the transaction at issue. View "Santander Holdings USA, Inc. v. United States" on Justia Law