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and contemplated coverage for transactions involving what were
essentially conduit devices. The legislative history indicates
that Congress was concerned about the impact on the economy of
the Netherlands Antilles if the use of finance subsidiaries
incorporated there were terminated too abruptly. Congress
therefore intended to effect “a gradual and orderly reduction of
international financing activity in the Netherlands Antilles”.
General Explanation at 393; see also S. Prt. 98-169 (Vol. 1), at
420-421 (1984). Repeal of the withholding tax on pre-existing
obligations was rejected because it
could have prompted U.S. corporations that had
previously issued obligations through Antilles finance
subsidiaries in an effort to avoid the tax to assume
those pre-existing obligations directly and, thus,
discontinue finance operations in the Antilles well
before the obligations mature. * * * [General
Explanation at 392.]
Congress contemplated that a “gradual and orderly” reduction in
the use of finance subsidiaries would be achieved by generally
allowing existing obligations to mature under a regime where
withholding taxes could be avoided by use of a Netherlands
Antilles finance subsidiary. Further, the drafters acknowledged
that this approach might permit exploitation of treaty exemptions
through conduitlike arrangements for a limited period. As stated
in the General Explanation:
Congress believed that, while offshore financings
generally should be scrutinized closely by the IRS and
tax treaties should not be used as a basis for
establishing conduits whose existence results in a
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