Northern Indiana Public Service Company - Page 20

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                  event that a withholding tax is imposed as a result of                              
                  a change in law or interpretation occurring after the                               
                  obligations are issued).  Because the Eurobond market                               
                  is generally comprised of bonds not subject to                                      
                  withholding tax by the country of source, an issuer may                             
                  not be able to compete easily for funds in the Eurobond                             
                  market solely on the basis of price if its interest                                 
                  payments are subject to a substantial tax.  U.S.                                    
                  corporations currently issue bonds in the Eurobond                                  
                  market free of U.S. withholding tax through the use of                              
                  international finance subsidiaries, almost all of which                             
                  are incorporated in the Netherlands Antilles.                                       
                        Finance subsidiaries of U.S. corporations are usually                         
                  paper corporations, often without employees or fixed assets,                        
                  which are organized to make one or more offerings in the                            
                  Eurobond market, with the proceeds to be relent to the U.S.                         
                  parent or to domestic or foreign affiliates.  The finance                           
                  subsidiary's indebtedness to the foreign bondholders is                             
                  guaranteed by the U.S. parent (or other affiliates).                                
                  Alternatively, the subsidiary's indebtedness is secured by                          
                  notes of the U.S. parent (or other affiliates) issued to the                        
                  Antilles subsidiary in exchange for the loan proceeds of the                        
                  bond issue.  Under this arrangement, the U.S. parent (or                            
                  other U.S. affiliate) receives the cash proceeds of the bond                        
                  issue but pays the interest to the Antilles finance                                 
                  subsidiary rather than directly to the foreign bondholders.                         
                  [S. Prt. 98-169 (Vol. I), at 418 (1984).]                                           

            The above description closely corresponds to the manner in which                          
            petitioner sought access to the Eurobond market.                                          
                  Petitioner wanted to take advantage of favorable Eurobond                           
            interest rates.  However, prospective lenders did not want to be                          
            liable for the 30-percent tax imposed by section 871(a)(1).                               
            Prospective lenders were willing to lend money to Finance because                         
            it was a Netherlands Antilles corporation whose notes would not                           
            be subject to tax under section 871(a)(1).  The business purpose                          
            of Finance was to borrow money in Europe at a favorable rate and                          
            lend money to petitioner.  For its involvement, Finance would                             




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