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petitioner posed two additional alternative arguments in support
of its allegation that respondent's excess interest tax
determination is in error. Petitioner contends that the advances
from related entities were equity rather than debt and, as a
second alternative, that section 267(a)(3) prevents the
application of the excess interest tax because the deduction for
its interest obligations to the related entities is prohibited.
If we do not accept petitioner's primary arguments, petitioner
also argues that: (1) Generally, the excess interest tax
violates the nondiscrimination clause of the treaty, and/or (2)
certain properties held by petitioner were not U.S. trade or
business assets for purposes of calculating the excess interest
tax.
Debt vs. Equity--We first address petitioner's contention
that the advances in question were equity rather than debt.
Petitioner, taking the position ordinarily advanced by
respondent, argues that there is no deductible interest based on
statutory (section 385) and case law concerning the debt versus
equity issue. If the advances are not debt for Federal income
tax purposes, as petitioner contends, there could be no
deductible interest expense on the advances and no liability for
the excess interest tax imposed by section 884(f)(1)(B).
Conversely, respondent argues that the debt versus equity issue
should be decided in favor of debt, rather than equity.
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