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assignment, U.S. Co. made its 4-percent interest payments to
Industrias, and Industrias made its 4-percent interest payments
to Bahamian. Prior to the assignment, U.S. Co.'s interest
payments to Bahamian would have been subject to the withholding
provisions of section 1441. But after the assignment, because
there was an income tax treaty between the United States and the
Republic of Honduras, U.S. Co. claimed exemption from the
withholding provisions.
In Aiken Indus., Inc. v. Commissioner, supra, we held that
the corporate existence of Industrias could not be disregarded.
However, we also held that the interest payments in issue were
not "received by" Industrias within the meaning of the article of
the United States-Honduras Income Tax Treaty that exempted
interest from tax. Id. at 933. In Aiken Indus., Inc. v.
Commissioner, supra at 933-934, we stated:
The words "received by" refer not merely to the
obtaining of physical possession on a temporary basis
of funds representing interest payments from a
corporation of a contracting State, but contemplate
complete dominion and control over the funds.
The convention requires more than a mere exchange
of paper between related corporations to come within
the protection of the exemption from taxation * * *,
and on the record as a whole, the * * * [taxpayer] has
failed to demonstrate that a substantive indebtedness
existed between a United States corporation and a
Honduran corporation.
* * * Industrias obtained exactly what it gave up
in a dollar-for-dollar exchange. Thus, it was
committed to pay out exactly what it collected, and it
made no profit on the * * * [exchange of the notes]
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