- 23 -
454; Rev. Rul. 70-645, 1970-2 C.B. 273; Rev. Rul. 69-501, 1969-2
C.B. 233; and Rev. Rul. 69-377, 1969-2 C.B. 231.
The General Explanation states that the conference approach
–-i.e., repeal of withholding for prospective obligations,
coupled with transitional relief for preexisting obligations
still subject to withholding-–was prompted by the same concern
expressed in the Senate explanation; namely, to avoid an overly
adverse impact on the Netherlands Antilles economy by providing
“a gradual and orderly reduction of international financing
activity in the Netherlands Antilles * * * [that would] mitigate
any economic hardship that the withholding tax repeal might
indirectly impose on that country.” General Explanation at
393.13
DEFRA section 127(g)(3), 98 Stat. 652-653, provides as
follows:
(3) Special rule for certain United States affiliate
obligations.--
(A) In general.--For purposes of the Internal Revenue
Code of 1954, payments of interest on a United States
affiliate obligation to an applicable CFC[14] in existence on
13 The General Explanation also states one other rationale
for prospective-only repeal: in the case of preexisting
obligations that had been issued directly by U.S. persons and
were held by foreign persons, retroactive repeal would produce
windfall tax reductions for such foreign persons since the price
of, and rate of return on, the obligations were set assuming that
a withholding tax would apply. See General Explanation at 392.
14 A “United States affiliate obligation” for this purpose
(continued...)
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