Overview
Court Allows Foreign Tax Credits Claimed in STARS Transaction: The District Court for the District of Massachusetts ruled on Friday that Santander Holdings USA, Inc., (formerly known as Sovereign Bancorp, Inc.) is entitled to foreign tax credits and interest deductions claimed as part of a Structured Trust Advantaged Repackaged Securities (STARS) transaction sponsored by Barclays Bank. The court rejected the government’s substance-over-form and economic substance arguments, finding that the transaction was legitimate and had a genuine, non-tax business purpose. Disagreeing with other courts that have looked at STARS transactions, the court held that since the taxpayer “incurred and paid income taxes to the U.K. for the years in question as a result of a business transaction with a U.K. counterparty, it is entitled to a credit against its U.S. income taxes for those years.”