Taiyo Hawaii Company, Ltd. - Page 16

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          companies.  On its Forms 1120F, U.S. Income Tax Return of a                 
          Foreign Corporation, petitioner reported interest paid by a U.S.            
          trade or business (branch interest) under section 884(f)(1)(A) to           
          include the accrued amounts in connection with the funding from             
          related foreign sources.  Petitioner did not withhold any amount            
          under sections 884(f)(1)(A) and 1442 with respect to the accrued            
          interest but did withhold with respect to the interest paid to              
          the unrelated banks.  Respondent, following the audit examination           
          of petitioner, determined that the accrued interest to related              
          entities did not qualify as branch interest and, instead,                   
          constituted excess interest within the meaning of section                   
              After respondent determined that there was an excess                   
          interest tax liability, petitioner attempted to fashion a                   
          solution for relief that would also avoid any additional tax to             
          petitioner or its parent.  The branch tax law contains various              
          provisions designed to permit alternatives to the tax under                 
          section 884 and to enable a taxpayer to choose which provision of           
          that section applies.  The "relief" provisions include elections            
          that, for example, would permit shifting the tax burden from                
          section 884 to section 882(e) as ECI or from excess interest tax            
          to branch interest withholding (section 884(f)(1)(B) to (A)).               
          None of the approaches provide the tax relief that petitioner               
          seeks.  Petitioner has also proposed several alternative                    

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