Medieval Attractions N.V - Page 66

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          July 31, 1986, and July 31, 1987, reported income effectively               
          connected with a trade or business in the United States.                    
          Eurotor's Federal tax return for the fiscal year ended July 31,             
          1988, was marked "Final Return" and contained the following                 
          statement:                                                                  
               Eurator S.A. (98-0063013) is not effectively connected                 
               with the conduct of a trade or business accordingly,                   
               Eurator S.A. is not required to file a U.S. income tax                 
               return of a foreign corporation (Form 1120F).                          
          The return did not report any effectively connected income for              
          1988, and there is no evidence that a 1989 return was filed.                
          Therefore, to the extent that Eurotor reported the management and           
          consulting fees on its 1987 Federal tax return, petitioners are             
          entitled to the exemption from withholding.  For 1988 and 1989,             
          petitioners are not entitled to the exemption from withholding              
          because the management services were U.S. source income and there           
          was no effectively connected income included in the gross income            
          of the recipient.                                                           
               E.  Guarantee Fees Paid to Dapy and Roundabout in Connection           
               With the Commercial Paper Transactions                                 
               Petitioners argue that the guarantee fees were not                     
          specifically sourced under section 861 or 862 and urge the Court            
          to characterize the payments as for services or to adopt an                 
          insurance premium analogy.                                                  
               Respondent contends that, to the extent the Court concludes            
          that the payments are dividends, the payments are subject to                
          withholding.  We concluded earlier that the payments underlying             




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