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governments from Federal income tax. The Court of Appeals
reasoned that the specific exception which the regulations set
forth was a permissible exercise of regulatory authority and
that, since Qantas was clearly within the terms of the exception,
it could not escape from that exception by claiming it was
entitled to the benefit of the broad general category of a
foreign government out of which the specific exception to the
exemption was carved. It does not follow from that conclusion
that, absent the specific exception, Qantas would have been
denied "foreign government" status. In fact, it is the absence
of that exception in the provision of the regulations containing
Example (3) of section 1.901-2(f)(2)(ii), Income Tax Regs., which
provides the critical difference in the instant case. Compare
15(...continued)
extent not engaged in commercial activities in the
United States.
* * * * * * *
(3) Controlled entity. An entity which is
separate in form from a foreign sovereign or otherwise
constitutes a separate juridical entity is a controlled
entity if it satisfies the following requirements:
(i) It is wholly owned and controlled by a
foreign sovereign directly or indirectly through one or
more controlled entities;
(ii) It is organized under the laws of the
foreign sovereign by which owned;
(iii) Its net earnings are credited to its own
account or to other accounts of the foreign sovereign,
with no portion of its income inuring to the benefit of
any private person; and
(iv) Its assets vest in the foreign sovereign
upon dissolution.
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