U.S, Bank Dispute Effect of Court's Initial Economic Substance Ruling

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Sovereign Bancorp Inc. and the government completed briefing in the U.S. District Court for the District of Massachusetts in support of their opposing motions for summary judgment on remaining legal issues in Sovereign's challenge to the Internal Revenue Service's disallowance of foreign tax credits claimed by Sovereign for taxes it paid to the U.K. resulting from a tax-advantaged transaction with Barclays Bank PLC (Santander Holdings USA, Inc. v. United States, D. Mass., No. 1:09-cv-11043, reply filed 1/30/14).
The motions followed an Oct. 17, 2013, order by Judge George A. O'Toole Jr. granting partial summary judgment to Santander Holdings USA Inc., the successor to Sovereign. O'Toole ruled that a payment made by Barclays to Sovereign—which represented half of a U.K. tax credit received by Barclays pursuant to a structured trust advantaged repackaged securities (STARS) transaction—was income to Sovereign, making it “objectively clear that the transaction has economic substance for Sovereign” (203 DTR K-3, 10/21/13).

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