- 26 -
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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