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Del Commercial argues that the interest payments were made to
Del Netherlands, a Netherlands corporation, and therefore that
under the U.S.-Netherlands Treaty the interest payments are
exempt from U.S. withholding tax.
Regardless of which theory is used under the step-transaction
doctrine, the facts in this case result in the same conclusion.
The facts reflect a step transaction created simply to bypass
U.S. withholding tax. Del Netherlands had minimal assets, and
Del Netherlands had only transitory possession of and no control
over the $14 million loan proceeds as the proceeds were passed
from Delcom Financial to Del Commercial. Apart from the
purported $14 million loan to Del Commercial, Del Netherlands
engaged in minimal business activity, and the Barbados branch of
Del Netherlands had no officer with any substantive duties or
responsibilities.
Royal Bank, the independent third-party lender which
ultimately provided the $14 million, exacted guaranties from Del
Commercial and mortgages or deeds of trust on Del Commercial’s
U.S. real property, establishing the link between the loan
payments Del Commercial made and the Royal Bank loan. Del
Netherlands passed on the loan payments received from Del
Commercial to its affiliated Canadian corporations in order to
service the $14 million Royal Bank loan. After July of 1992, Del
Commercial bypassed Del Netherlands completely and made the loan
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