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Rebecca Rosenberg

Assistant Professor of Law
Tilton Hall of Law # 194
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B.A., Bryn Mawr College

J.D., Harvard Law School

LLM-Taxation, Georgetown University Law Center

Faculty Activities

Social Science Research Network has listed the below articLe on the TOP-10 download list for Tax Law: International & Comparative Tax eJournal:

"STARS Wars:  Application of the Economic Substance Doctrine to Foreign Tax Credits, and What the Future Holds" Rebecca Rosenberg © 2016


The recent, controversial STARS (Structured Trust Advantaged Repackaged Securities) cases provide a backdrop for analyzing how the economic substance doctrine ideally should be applied to foreign tax credit cases.  The economic substance doctrine is a judicial doctrine that allows courts to disregard the tax consequences of a transaction that violates the intent of the relevant statute.  Its application to foreign tax credits has a long and contentious history, and the STARS cases have given new life to the government’s arguments. 

After the STARS cases, the circuits are split on the question of how foreign taxes should be treated in computing profit for purposes of the economic substance test.  This article argues that foreign taxes should be treated as a cost for such purposes, even in situations in which the taxpayer does not bear the economic burden of the tax. 

Given the difficulties of applying the economic substance doctrine, the article also discusses possible alternative approaches (either under current law or as changes to the current statutory or regulatory rules).  Among such alternatives, the article considers the viability of a subsidy argument, although the government chose not to raise such an argument in the STARS cases.

In the bigger picture, the article also considers possible future changes in the doctrine, including the impact of the economic substance doctrine’s recent codification in section 7701(o) of the Internal Revenue Code.  Among other things, the “business purpose” factor of the economic substance test is likely to receive increased emphasis in the future, although the case law has provided relatively little guidance on this factor in the past.