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revoked revenue rulings issued in connection with the Interest
Equalization Tax.10 DEFRA sec. 127(g)(3), 98 Stat. 652.
In the instant case, the parties dispute whether petitioner
qualifies for the transitional relief provided in DEFRA section
127(g)(3). In addition, the parties dispute whether, if
petitioner is not eligible for relief under DEFRA section
127(g)(3), petitioner is nonetheless exempt from withholding
liability pursuant to article VIII(1) of the income tax treaty
between the United States and the Netherlands, as extended to the
Netherlands Antilles (U.S.-Netherlands income tax treaty).11
Some background is helpful in understanding the transition
provisions of DEFRA section 127(g)(3). In the 1960's, U.S.
companies began to raise capital through the Eurobond market by
using specialized finance subsidiaries. Such a finance
subsidiary was organized exclusively to issue debt in the
Eurobond market and lend the proceeds to its U.S. parent or
domestic or foreign affiliates in exchange for a promissory note.
The U.S. parent or other affiliate would typically guarantee the
10 The Interest Equalization Tax was enacted in the Interest
Equalization Tax Act, Pub. L. 88-563, 78 Stat. 809 (1964), and
expired on June 30, 1974.
11 Convention with Respect to Taxes on Income and Certain
Other Taxes, Apr. 29, 1948, U.S.-Neth., 62 Stat. 1757, TIAS 1855
(extended to the Netherlands Antilles by Protocol, June 15, 1955,
6 U.S.T. 3696, TIAS 3366; amended by Protocol, Oct. 23, 1963, 15
U.S.T. 1900, TIAS 5665; modified and supplemented by Convention,
Dec. 30, 1965, 17 U.S.T. 896, TIAS 6051).
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