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country or who are not citizens or resident aliens of the United
States or (2) 50 percent or more of the corporation’s income is
used to satisfy liabilities to persons who are not residents of
the foreign country or residents or citizens of the United
States. Sec. 884(e)(4)(A). The Code specifically lists
exceptions for wholly owned subsidiaries of publicly traded
corporations. See sec. 884(e)(4)(B). However, no explicit
exception exists for wholly owned subsidiaries of privately owned
or government-owned corporations. See id.
B. China Agreement
Article 10, paragraph 3 of the China Agreement provides:
interest arising in * * * [the United States] and
derived by the government of * * * [the People’s
Republic of China] or any financial institution wholly
owned by that government, or by any resident of * * *
[the People’s Republic of China] with respect to debt-
claims indirectly financed by the government of * * *
[the People’s Republic of China] or any financial
institution wholly owned by that government, shall be
exempt from tax in the * * * [United States].
The China Agreement applies only to “residents of one or both of
the Contracting States.” Id. art. 1. The two Contracting States
to the China Agreement are the People’s Republic of China and the
United States of America. Id. art. 3, par. 1(c). A resident of
a Contracting State is a person who is liable to pay tax to that
State by reason of residency, location of offices, place of
incorporation, or other similar criterion. Id. art. 4, par. 1.
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Last modified: March 27, 2008