- 99 -
Reduction Act of 1984, Pub. L. 98-369, sec. 127(g)(3)(C)(ii), 98
Stat. 653. An "applicable CFC" is, in general, a CFC that main-
tains a debt-to-equity ratio of not more than five to one and the
principal activity of which is the issuing of obligations to
foreign persons or the holding of short term obligations and the
lending of the proceeds of such obligations to U.S. persons
related to it within the meaning of section 482. See Deficit
Reduction Act of 1984, Pub. L. 98-369, sec. 127(g)(3)(C)(ii), 98
Stat. 653.
B. Substance Over Form and Related Doctrines
Because the parties argue these cases essentially in terms
of substance over form and related (e.g. step transaction and
sham) doctrines, we briefly describe those principles.71
71 In 1993, Congress enacted sec. 7701(l). That provision au-
thorizes the Secretary to prescribe regulations recharacterizing
multiple-party financing transactions where the Secretary deter-
mines that such recharacterization is appropriate to prevent tax
avoidance. Omnibus Budget Reconciliation Act of 1993, Pub. L.
103-66, sec. 13238, 107 Stat. 508-509. By enacting sec. 7701(l)
in 1993, Congress did not intend any negative inference to be
drawn concerning positions taken by respondent under preexisting
law. S. Prt. 103-36 at 191 (Comm. Print 1993); H. Rept. 103-111
at 729 (1993), 1993-3 C.B. 167, 305. Sec. 7701(l) took effect on
Aug. 10, 1993. See 107 Stat. 685; H. Conf. Rept. No. 103-213 at
655 (1993), 1993-3 C.B. 393, 533. On Aug. 11, 1995, final
regulations were issued under sec. 7701(l). T.D. 8611, 60 Fed.
Reg. 40997 (Aug. 11, 1995). As pertinent here, those regulations
apply to payments by financed entities, as defined in sec. 1.881-
3(a)(2)(i), Income Tax Regs., made on or after Sept. 11, 1995,
but do not apply to interest payments covered by sec. 127(g)(3)
of the Deficit Reduction Act of 1984, 98 Stat. 652-653, or to
interest payments with respect to other debt obligations issued
prior to Oct. 15, 1984 (whether or not such debt was issued by a
Netherlands Antilles corporation). Sec. 1.881-3(f), Income Tax
Regs.
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