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purpose was to borrow money in Europe and lend money to
petitioner--and petitioner obviously needed the $14 million9--one
would naturally expect that a $14 million capital contribution
received by Finance would have been lent right back to
petitioner. This would have presumably satisfied respondent's
debt-to-equity ratio, and respondent would not have characterized
Finance as a mere conduit.10 In reality, however, nothing of
economic significance would have occurred with respect to
Finance's issuance of Euronotes. The financial stability of
Finance and the position of the Euronote holders would have been
substantially unchanged. Both would have ultimately remained
dependent upon petitioner's ability to pay its notes to Finance,
so that Finance could in turn pay off the Euronotes.
The legislative history of DEFRA describes the manner in
which domestic corporations accessed the Eurobond market:
In general, debt securities in the Eurobond market
are free of taxes withheld at source, and the form of
bond, debenture, or note sold in the Eurobond market
puts the risk of such a tax on the issuer by requiring
the issuer to pay interest, premiums, and principal net
of any tax which might be withheld at source (subject
to a right of the issuer to call the obligations in the
9The whole purpose of Finance was to facilitate petitioner's
borrowing $70 million.
10Respondent did not contend on brief that a financing
subsidiary would be lacking in substance if it lent its capital
back to its parent, and nothing in respondent's revenue rulings
indicates the manner in which a financing subsidiary is required
to invest its capital.
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