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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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