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interest payments Del Commercial made on the loan should be
treated as having been made by Del Commercial to Delcom Financial
and as subject to withholding tax.
OPINION
Under section 881(a), foreign corporations which receive
interest income from U.S. payors (that is not effectively
connected with conduct of a trade or business within the United
States) are liable for a tax of 30 percent of the interest
received. U.S. taxpayers who pay the interest to the foreign
corporations generally are required to withhold the 30-percent
tax from interest payments made to the foreign corporations. See
secs. 1441 and 1442. U.S. taxpayers who are required to withhold
the 30-percent tax and who fail to do so become personally liable
for the withholding tax. See sec. 1461.
Under section 894, U.S. treaty provisions may modify the
Internal Revenue Code, including the withholding tax provisions.
For the years at issue, under a treaty between the United States
and Canada (U.S.-Canada Treaty), interest payments made by U.S.
taxpayers to Canadian corporations are subject to tax at a rate
not exceeding 15 percent if the Canadian corporations are the
beneficial recipients and owners of the interest income. See
Convention on Taxes on Income and Capital, Sept. 26, 1980, U.S.-
Can., art. XI, T.I.A.S. No. 11087.
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