105 T.C. No. 22
UNITED STATES TAX COURT
NORTHERN INDIANA PUBLIC SERVICE COMPANY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24468-91. Filed November 6, 1995.
P, a domestic utility company, formed F as a
subsidiary corporation in the Netherlands Antilles.
F's only activity was to borrow money by issuing
Euronotes and then lend the proceeds to P at an
interest rate that was 1 percent greater than the rate
on the Euronotes. Sec. 1441, I.R.C., generally
requires a domestic taxpayer to withhold a 30-percent
tax on interest paid to nonresident aliens. However,
payments to Netherlands Antilles corporations were
exempted from this tax pursuant to treaty. R
determined that F was a mere conduit or agent of P,
that P should be treated as having paid interest
directly to the Euronote holders, and that P is
therefore liable for the withholding tax.
Held: F engaged in the business activity of
borrowing and lending money. F was not a mere conduit
or agent. The treaty exemption applies. P is not
liable for the withholding tax.
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