- 62 -
Special Accounts 259,411
Term Deposits 10,018
Pace 5,895,859
Byte 33,822
Respondent seeks to levy an identical withholding tax on INC
for calendar years 1987, 1988, and 1989. We find that the total
amounts on which INC is potentially subject to withholding tax
are the same as for LTD, viz, $1,668,636 for 1987; $6,105,862 for
1988; and $10,867,511 for 1989. The breakdown of the withholding
amounts is also the same as for LTD. See supra.
III. OPINION
A. Whether LTD Was Engaged in Trade
or Business Within the United States
The first issue we must decide is whether LTD was engaged in
trade or business within the United States pursuant to section
864(b). If we decide that LTD was engaged in trade or business
within the United States, then we must decide the character and
the source of each item of LTD's income and whether each such
item was effectively connected with the conduct of such trade or
business pursuant to section 864(c).
Foreign corporations operating in the United States are
subject to two U.S. taxation regimes. Under the first regime, a
foreign corporation engaged in trade or business within the
United States during the taxable year is taxable on its income
which is effectively connected with the conduct of such trade or
business within the United States (effectively connected income).
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