National Westminster Bank PLC v. United States
United States Court of Federal Claims
44 Fed. Cl. 120 (1999)
- Written by David Bloom, JD
Facts
National Westminster Bank PLC (NatWest) (plaintiff), a banking company based in the United Kingdom, had branches in the United States and other countries. NatWest’s United States branch borrowed money from NatWest’s headquarters in the United Kingdom and NatWest’s branches in other countries. The interbranch loans generated interest income for NatWest. NatWest filed federal tax returns that treated the branches as separate legal entities. NatWest, therefore, reported a taxable profit on the interest income but claimed a deduction for interest expenses. The Internal Revenue Service (IRS) audited NatWest, disallowed the claimed interest deduction, and forced NatWest to pay higher taxes. The IRS relied on a regulation established by the United States Treasury (defendant) that governed the deductions that a foreign corporation with income sourced from United States business operations was allowed to take. Pursuant to the regulation, the IRS calculated NatWest’s interest-expense deduction without regard to the interbranch transactions and focused on the entirety of NatWest’s global banking operations rather than on the independent operations of NatWest’s United States branch. NatWest filed suit, seeking to recover a tax refund. NatWest and the United States Treasury both motioned for summary judgment.
Rule of Law
Issue
Holding and Reasoning (Turner, J.)
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