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Dealers. Although most of the bond issues in the Eurobond market
were denominated in dollars (whether or not the issuer was a U.S.
corporation), bonds issued in the Eurobond market were also
frequently denominated in other currencies.
The practice in the Eurobond market was for issuers of
securities to provide indemnification for withholding taxes to
foreign investors. Foreign investors would not have purchased
Eurobond obligations without such an indemnification because the
imposition of withholding taxes would decrease their return on
the Eurobond obligations. If a withholding tax were imposed, the
indemnification would increase the issuer’s cost of borrowing,
inasmuch as the issuer would have to pay a higher rate of
interest to compensate debtholders for the 30-percent withholding
tax.
According to an analysis prepared by the Joint Committee on
Taxation, in the 1960's the U.S. Government adopted a program
designed to curtail devaluation of the dollar by encouraging
overseas borrowing by U.S. companies. One element of the program
was the enactment of the Interest Equalization Tax, which in
general imposed a tax on the acquisition by U.S. persons of
foreign securities from foreign persons. By 1968, some U.S.
corporations had begun to obtain capital overseas in the Eurobond
market through the use of Netherlands Antilles finance
subsidiaries. The Netherlands Antilles finance subsidiaries
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