- 176 -
under article VIII(1) because it qualifies for the grandfathering
provided by Rev. Rul. 85-163, supra, it is respondent's position
that petitioner has not satisfied his burden of proving that that
interest so qualifies.131
Turning to petitioner's contention that the interest at
issue in the Horbury transaction is exempt from U.S. taxation un-
der article VIII(1) because the express provisions of that arti-
cle have been satisfied, we agree with respondent that, under
substance over form and related principles, which we applied in
Aiken Indus., Inc. v. Commissioner, 56 T.C. at 933-934, the
question whether a payment of interest is exempt from U.S. taxa-
tion under the provisions of a treaty is determined by the sub-
stance, rather than the form, of the transaction with respect to
which such a payment is made. The record in these cases is de-
void of reliable evidence that would enable us to determine
whether or not the form of the Horbury loan to BOT reflected its
substance. We therefore cannot conclude that the interest at
issue in the Horbury transaction was, in substance, paid to
Horbury, as petitioner contends. On the instant record, we find
that petitioner has failed to satisfy his burden of showing that
that interest is exempt from U.S. taxation under article VIII(1)
131 Respondent seems to agree with petitioner that if the
Horbury loan were to qualify for the grandfathering afforded by
Rev. Rul. 85-163, supra, the interest at issue in the Horbury
transaction would be exempt from U.S. taxation under article
VIII(1).
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