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withholding tax. Based on this, we are not convinced that
Congress was attempting to impart legitimacy to the debt-to-
equity ratio that was required by the revenue rulings.13
13In Rev. Rul. 84-153, 1984-2 C.B. 383, the Commissioner
took the position that a Netherlands Antilles financing
subsidiary was a mere conduit for interest payments to foreign
bondholders even though the subsidiary was adequately
capitalized. The facts in Rev. Rul. 84-153, supra, are
essentially as follows: (1) P, a corporation organized under
the laws of the United States, owned 100 percent of the stock of
S, an Antilles corporation; (2) to upgrade the production
facilities of P's wholly owned domestic subsidiary, R, S sold
bonds to foreign persons in public offerings outside the United
States on Sept. 1, 1984; (3) S lent the proceeds from the bond
offerings to R at a rate of interest that was 1 percentage point
higher than the rate payable by S on the bonds; (4) R made timely
payments to S and S made timely payments to its bondholders; (5)
S's excess revenue after expenses was retained by S; (6) neither
P, R, nor S was thinly capitalized. The revenue ruling does not
mention any debt-to-equity ratio, nor does it explain the meaning
of "thinly capitalized". The revenue ruling concludes:
In substance, S, while a valid Antilles corporation,
never had such dominion and control over R's interest
payments, but rather was merely a conduit for the
passage of R's interest payments to the foreign
bondholders. The primary purpose for involving S in
the borrowing transaction was to attempt to obtain the
benefits of the Article VIII(1) interest exemption for
interest paid in form by R, a domestic corporation, to
S, an Antilles corporation, thus, resulting in the
avoidance of United States tax. This use of S lacks
sufficient business or economic purpose to overcome the
conduit nature of the transaction, even though it can
be demonstrated that the transaction may serve some
business or economic purpose. See Gregory v.
Helvering, 293 U.S. 465 (1935), and Aiken Industries,
Inc., v. Commissioner, supra. * * * [Rev. Rul. 84-
153, 1984-2 C.B. at 384.]
It is clear from this that the Commissioner would treat a
Netherlands Antilles finance corporation as a conduit, regardless
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