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exemption from the withholding tax and a number of legal
arguments would support the taxation of these arrangements
in accordance with their form. * * *
3 Compare, e.g., Aiken Industries, Inc., 56 T.C. 925
(1971), and Plantation Patterns, Inc. v. Commissioner,
462 F.2d 712 (5th Cir. 1972), 72-2 U.S.T.C. Paragraph
9494, cert. denied, 406 U.S. 1076, with Moline
Properties, 319 U.S. 436 (1943), 43-1 U.S.T.C.
Paragraph 9464 and Perry R. Bass, 50 T.C. 595 (1968).
[Id. at 419].
See also Staff of Joint Comm. on Taxation, General Explanation of
the Revenue Provisions of the Deficit Reduction Act of 1984, at
390 (J. Comm. Print 1984) (hereinafter General Explanation).
Concluding that tax-free access to the Eurobond market for
U.S. companies should be direct, rather than through finance
subsidiaries, the Finance Committee decided to repeal the
withholding tax on portfolio interest paid to foreign
corporations and nonresident alien individuals. The Committee
was “concerned, however, that repeal of the withholding tax,
without a transitional period, may have a substantial negative
impact on the economy of the Netherlands Antilles” because “the
use of the Antilles as a financial center is likely to be
substantially reduced”. S. Prt. 98-169 (Vol. 1), supra at 420.
Therefore, the Committee “[provided] for a gradual phase-out,
rather than immediate repeal, of the withholding tax” on interest
paid with respect to portfolio debt, in the form of a reduction
in the rate from 30 percent to 5 percent on interest received
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