Taiyo Hawaii Company, Ltd. - Page 26

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          from the 1986 statutory version.  See 1996 Act sec.                         
          1704(f)(3)(A)(iii), 110 Stat. 1879, amending section 884(f)                 
          retroactively for tax year beginning after December 31, 1986.               
               The report of the House Ways and Means Committee                       
          accompanying the 1996 Act makes it clear that the retroactive               
          amendments were intended to address an argument similar to that             
          made by petitioner in this case.  In explaining the provision,              
          the report contains the statement that                                      
                    The bill provides that the branch level interest                  
               tax on interest not actually paid by the branch applies                
               to any interest which is allocable to income which is                  
               effectively connected with the conduct of a trade or                   
               business in the United States.  * * * [H. Rept. 104-                   
               586, at 174 (1996).14]                                                 
          By way of comparison the House report also states, regarding the            
          withholding of tax from payments by a U.S. subsidiary to its                
          foreign parent, that                                                        

               14  The Small Business Job Protection Act of 1996 (1996                
          Act), Pub. L. 104-188, 110 Stat. 1755, was intended to clarify              
          rather than change the branch profit tax provision.  Even in the            
          context of sec. 884 as enacted by the Tax Reform Act of 1986 (TRA           
          '86), Pub. L. 99-514, 100 Stat. 2085, and prior to amendment by             
          the 1996 Act, we think that petitioner's argument would not be              
          persuasive. The House conference report in connection with the              
          TRA '86 clearly undermines petitioner's position by demarcating             
          between interest allocated to a foreign corporation's U.S. branch           
          under sec. 1.882-5, Income Tax Regs., and interest "actually                
          paid" by the branch.  See H. Conf. Rept. 99-841 (Vol. II), at II-           
          646 (1986), 1986-3 C.B. (Vol. 4) 1, 646-649.  In addition, the              
          General Explanation of  TRA '86 appears to be consistent with               
          respondent's interpretation of the applicability of the excess              
          interest tax.  See Staff of Joint Comm. on Taxation, General                
          Explanation of the Tax Reform Act of 1986, at 1037 (J. Comm.                
          Print 1987).                                                                

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