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Additionally, respondent argues that INC had signatory
authority over the accounts in which funds were held, managed the
investments for the funds, and was responsible for crediting the
accounts of the clients from the funds. Accordingly, respondent
contends that INC controlled the payment of interest and is
therefore a withholding agent liable for withholding tax.
In the instant case, we conclude that, in its pooled
investments program, LTD was not the obligor to its clients. We
have concluded, supra p. 96, that the "real business" of LTD was
to enable Mexican nationals to invest their capital in non-
Mexican financial markets. LTD’s clients did not place their
funds with LTD as an investment in LTD; rather, LTD’s clients
placed their funds with LTD as a manager, to be invested in non-
Mexican financial markets per the clients’ direction.
Respondent has conceded that the exemption for interest on
deposits with persons carrying on the banking business applies to
the interest paid on certificates of deposit in the clients’
name. We conclude that LTD’s relationship with its clients with
regard to pooled investments differs in no material respect from
its relationship with its clients with regard to investments
purchased in the client’s name. In both investment programs, LTD
had no economic interest in the pooled investments as such but
only an interest in the spread between the rates earned from the
investments and the rates paid by LTD to its clients. After
paying to its clients their respective portions of the interest
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