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Bermuda were derived from the royalties received by petitioner
from SDI USA, they were separate payments.
We find support for our conclusion herein in that
respondent's view of the law could cause a cascading royalty
problem, whereby multiple withholding taxes could be paid on the
same royalty payment as it is transferred up a chain of
licensors. See, e.g., 1 Isenbergh, International Taxation: U.S.
Taxation of Foreign Persons and Foreign Income, par. 7.8, pp.
7:20-7:21 (2d ed. 1996); 2 Kuntz and Peroni, U.S. International
Taxation C1-45 - C1-46 (1992); Dale, "Withholding Tax on Payments
to Foreign Persons," 36 Tax L. Rev. 49, 66-67 (1980). But for
the U.S.-Netherlands treaty, the royalty payments from SDI USA
could be subject to withholding tax twice under respondent's
reasoning herein.
Respondent argues that only one withholding tax is being
sought herein. However, this ignores the fact that, by treaty,
the U.S. agreed to forgo taxing royalties and to allow them to be
taxed by The Netherlands. Whether or not The Netherlands
actually taxed the royalties is irrelevant.
Respondent also infers that she would use her discretion not
to apply more than one level of withholding tax on multiple
transfers of income that originated as U.S. source income. We
think this places an improper exercise of discretion in
respondent's hands. To avoid the imposition of interest and
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