Northern Indiana Public Service Company - Page 19

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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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Last modified: May 25, 2011