Northern Indiana Public Service Company - Page 11

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            income tax treaty between the United States and the Netherlands,                          
            as extended to the Netherlands Antilles (Treaty), provided the                            
            following:                                                                                

                        (1) Interest on bonds, notes, debentures,                                     
                  securities, deposits or any other form of indebtedness                              
                  * * * paid to a resident or corporation of one of the                               
                  Contracting States shall be exempt from tax by the                                  
                  other Contracting State.  [Convention with Respect to                               
                  Taxes, Apr. 29, 1948, U.S.--The Neth., art. VIII, 62                                
                  Stat. 1757, 1761, supplemented by Protocol, Oct. 23,                                
                  1963, 15 U.S.T. 1900, modified by Supplementary                                     
                  Convention, Dec. 30, 1965, 17 U.S.T. 896, 901.]                                     

            In light of this Treaty provision, if petitioner's interest                               
            payments are recognized as having been paid to Finance, Finance                           
            would not be liable for the tax imposed by section 871(a)(1), and                         
            petitioner would be under no obligation to withhold tax pursuant                          
            to section 1441.                                                                          
                  Respondent determined that petitioner was required to                               
            withhold taxes pursuant to section 1441 on the interest payments                          
            to the Euronote holders.  Respondent's position is based on the                           
            proposition that Finance should be ignored and that petitioner                            
            should be viewed as having paid interest directly to the Euronote                         
            holders.  Respondent argues that Finance was a mere conduit or                            
            agent in the borrowing and interest-paying process.                                       
                  Petitioner formed Finance for the purpose of borrowing money                        
            in Europe and lending money to petitioner.  Normally, a choice to                         
            transact business in corporate form will be recognized for tax                            
            purposes so long as there is a business purpose or the                                    




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Last modified: May 25, 2011