* Goldman Sachs, King & Spalding involved in case
* Justice says "phony tax deductions" were created
* Dow says exploring options, including appeal
By Patrick Temple-West
WASHINGTON, Feb 27 The U.S. Justice Department
said on Wednesday it has won a $1 billion tax shelter case
against Dow Chemical Co that involved a Swiss
partnership, Wall Street financial giant Goldman Sachs
and international law firm King & Spalding.
The U.S. District Court for the Middle District of Louisiana
rejected two tax shelter transactions entered into by the Dow
Chemical Co "that purported to create approximately $1 billion
in phony tax deductions," Justice said in a statement.
Chief Judge Brian Jackson also imposed penalties, the
department said of the decision in the Baton Rouge court.
A Dow spokeswoman said in a statement that Dow sued the U.S.
government for return of taxes paid for tax years 1993-2003.
"Dow paid all taxes at issue plus interest, but requested
the U.S. District Court to agree that the taxes were wrongly
assessed by the IRS," the spokeswoman said.
"Dow is disappointed by the trial court's decision ... we
believe the opinion is not supported by the facts and applicable
law. Dow is exploring all of its options, including appeal."
The case dates back to transactions Dow started in 1993 that
involved patent transfers to company subsidiaries.
The IRS in 2005 denied Dow tax deductions based on the
transactions, arguing the deals had no legitimate economic
benefit to the company. Dow sued the government in 2005 to keep
its tax deductions.
The transactions, created by Goldman Sachs and King &
Spalding, involved forming a partnership that Dow operated from
its European headquarters in Switzerland, according to the
Jackson wrote in his 74-page opinion that the government was
correct to reject "the artificial tax benefits created by these
schemes that were designed to exploit perceived weaknesses in
the tax code and not designed for legitimate business reasons,"
according to the Justice Department.
Assistant U.S. Attorney General Kathryn Keneally of
Justice's Tax Division said: "It is offensive to all taxpayers
who pay their fair share when our largest corporations believe
that they can claim hundreds of millions of dollars in tax
deductions that are manufactured by abusive tax schemes."
Goldman Sachs and King Spalding both declined to comment.