American International Group, Inc. v. United States of America
OPINION DENYING MOTION IN LIMINE: on re: 168 MOTION in Limine to exclude from trial evidence concerning eight so-called Domestic Transactions, filed by United States of America. Such evidence bears so directly on the issue whether t he foreign transactions had "no business purpose or economic effect other than the creation of tax" benefits, DeMartino v. Comm'r, 862 F.2d 400, 406 (2d Cir. 1988), that it cannot be excluded in advance of trial. In fact, the presentat ion of the domestic transactions need not present extraordinary complexities. The salient point should be whether they have such significant differences from the foreign transactions that the two classes of transactions cannot be usefully compared. T hose differences should be identified and isolated by counsel before trial, at the latest in the joint pretrial order, so that their submission to the jury can be evaluated. The motion to exclude the domestic transactions in limine (Doc. No. 168) is denied, and as further set forth in this order. (Signed by Judge Louis L. Stanton on 10/6/2017) (ap)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - X
AMERICAN INTERNATIONAL GROUP, INC.,
09 Civ. 1871 (LLS)
MOTION IN LIMINE
- against -
UNITED STATES OF AMERICA,
- - - - - - - - - - - - - -
The Defendant United States of America moves in limine to
exclude evidence of domestic transactions, claimed by Plaintiff
American International Group ("AIG") to be identical to the
foreign transactions except without foreign tax, but which the
government urges are immaterial, complex and a confusing
distraction which will impose wasteful and burdensome discovery
proceedings, require development of new areas of expert
testimony, lengthen the trial, and unnecessarily complicate the
The dispute is an important one, and its resolution follows
from a simplified statement of the trial issues.
The analysis of the commercial, rather than tax-exploitive,
nature of a transaction has two prongs:
subjective; and "both prongs are factors to consider in the
- 1 -
overall inquiry into a transaction's practical economic
See the extensive, authoritative discussion in Bank
of N.Y. Mellon Corp. v. Comm'r, 801 F.3d 104, 115 (2d Cir.
The objective prong looks for profits independent of tax
treatment, and requires that foreign taxes paid as an expense of
the business be deducted from income before calculation of
profit, and stops there, concluding that the measure of
business, non-tax profit is completed.
It does not consider the
indemnity of that expense by foreign tax credits ("FTC").
this case, the (before FTC) deduction of the foreign taxes paid
reduces the income from the foreign transaction so much that
there is no profit.
That favors conclusions that the
transaction itself is not profitable, would not have been
entered into without the prospect of the FTC, and has no
independent business purpose.
The subjective prong looks to the total economic effect of
the transaction, and the parties' expectations, purpose and
reasons for entering into it, such as evidence of their
contemporaneous statements and characterizations of it.
AIG's submission, these foreign transactions generated
substantial profits by themselves (which were duly taxed by the
United States authorities), which profits would have been
consumed by the foreign taxes, if they were not in turn offset
- 2 -
by the FTC in effectuation of the policy against double
That favors the conclusion that the foreign
transaction offered profit exclusive of tax benefits, had
economic substance, and an independent non-tax business purpose
when subjected to only one (U.S.A.) set of taxes.
conclusion, AIG says, is persuasively demonstrated by the
proffered domestic transactions.
The domestic transactions were profitable.
They did not
involve AIG's payment of a foreign tax, and thus had no need for
Therefore, their business results stand alone, and if
they are comparable, add considerable force to AIG's argument
that the foreign transactions had non-tax purposes.
in its September 13, 2017 brief in opp. pp. 1-2:
They are identical for all material purposes.
addition to the testimony of AIG's fact witnesses
who regarded the two types of transactions as
comparable when they structured them, AIG's experts
have testified that their similarity makes the
Domestic Transactions the best economic
"comparable" for proving that the Foreign
Transactions furthered a "non-tax business purpose"
under the economic substance doctrine and for
disproving the government's contention that the
"source of profit" in the Foreign Transactions was
foreign tax credits ("FTCs") .
Indeed, even the
government's chief economic expert regards the two
types of transactions as structurally similar.
The only difference between the Domestic and
Foreign Transactions was the domicile of the
special purpose vehicle ("SPV") that earns income
- 3 -
and pays tax.
In the Foreign Transactions, the
SPV was domiciled abroad, which led to the
incurrence of a foreign tax and a corresponding
dollar-for-dollar FTC on AIG's U.S. tax return.
the Domestic Transactions, the SPV was domiciled
in the United States.
There was thus no foreign
tax paid and no FTC claimed. AIG's witnesses will
testify that AIG preferred the Domestic
Transactions, and the record will show that AIG
entered into more Domestic Transactions than
The Domestic Transactions
show that AIG was not attempting to obtain FTCs
(let alone "solely" to obtain FTCs) because AIG
entered into precisely the same transactions
without seeking or obtaining any FTCs.
The Domestic Transactions also refute the
government's repeated assertion that the only
"source of profit" of the Foreign Transactions was
FTCs. AIG's experts refute the government's
position by showing that no "profit" can result
from claiming a dollar of FTC after paying a
dollar of foreign tax.
The fact that the Foreign
and Domestic Transactions had similar profits,
where the Domestic Transactions did not utilize
any FTCs, bears out this point.
The "source of
profit" for the Foreign Transactions cannot be the
FTCs and must thus be rooted elsewhere - namely,
in the low-cost borrowing that AIG obtained from
the foreign banks, which resulted from the
favorable foreign tax treatment afforded the
foreign banks by their home countries.
Domestic Transactions will thus help the jury
understand the true role of the FTCs and give the
jury a complete picture of AIG's business purpose
in entering into the transactions.
Such evidence bears so directly on the issue whether the
foreign transactions had "no business purpose or economic effect
other than the creation of tax" benefits, DeMartino v. Comm'r,
862 F.2d 400, 406 (2d Cir. 1988), that it cannot be excluded in
advance of trial.
- 4 -
In fact, the presentation of the domestic transactions need
not present extraordinary complexities.
The salient point
should be whether they have such significant differences from
the foreign transactions that the two classes of transactions
cannot be usefully compared.
Those differences should be
identified and isolated by counsel before trial, at the latest
in the joint pretrial order, so that their submission to the
jury can be evaluated.
The motion to exclude the domestic transactions in limine
(Doc. No. 168) is denied.
New York, New York
October 6, 2017
- 5 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?