- 27 -
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
(continued...)
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011