Taiyo Hawaii Company, Ltd. - Page 27

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               In the case of a U.S. subsidiary of a foreign parent                   
               corporation, the withholding tax applies without regard                
               to whether the interest payment is currently deductible                
               by the U.S. subsidiary.  For example, deductions for                   
               interest may be delayed or denied under section 163,                   
               263, 263A, 266, 267, or 469, but it is still subject                   
               (or not subject) to withholding when paid without                      
               regard to the operation of those provisions.                           
               *       *       *       *       *       *       *                      
                    These provisions are effective as if they were                    
               made by the Tax Reform Act of 1986.  [Id. at 173-174.]                 
               We are persuaded that in enacting and retroactively amending           
          section 884, Congress did not intend to allow the principles of             
          section 267 to preempt the parity between U.S. branches and                 
          subsidiaries of foreign corporations that the excess interest tax           
          was designed and intended to accomplish.                                    
               Accordingly, we hold that interest expense allocable to the            
          ECI of a branch of a foreign corporation is taken into account              
          for purposes of section 884(f)(1)(B) even if the interest is                
          rendered nondeductible by section 267.  We reject petitioner's              
          contention that the deductibility of the interest is a                      
          prerequisite for inclusion in the calculation of a foreign                  
          corporation's excess interest tax liability under section                   
          884(f)(1)(B), and we find that petitioner is subject to the                 
          excess interest tax provisions.15                                           

               15  Our conclusion is further reinforced by commentators               
          who, generally, have supported the proposition that the actual              
          deductibility is not a prerequisite for the application of the              
          excess interest tax.  See Blessing & Markwardt, 909-2d Tax                  

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