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a memorandum addressed to Keith Wettlaufer (Mr. Wettlaufer),
senior vice president of petitioner and of ITC for finance and
administration (June 15, 1993 memorandum). Mr. Thorpe reviewed
and initialed that memorandum. The June 15, 1993 memorandum set
forth Price Waterhouse’s suggestions as to the steps necessary to
effect a dividend from ITC to petitioner that would avoid Cana-
dian withholding tax and generate sufficient foreign tax credits
to minimize petitioner’s anticipated tax liability for its
taxable year ended June 30, 1993. The June 15, 1993 memorandum
stated:
As you requested, this memorandum outlines the steps we
feel are necessary to pay a dividend from InterTAN
Canada Ltd (Canada) [ITC] to InterTAN, Inc. (ITI)
[petitioner] and avoid the Canadian withholding tax.
1. Prior to paying the dividend, Canada should
repay all or a portion of the note payable to
ITI.
2. ITI should then make a cash contribution to
Canada. The purpose of this step is to in-
crease Canada’s paid in capital so the divi-
dend can be considered a return of capital
for Canadian tax purposes. This step should
also be completed prior to paying the divi-
dend.
3. Canada should pay the dividend on or before
June 30, 1993.
4. During the 1st quarter of the next fiscal
year ITI can make a new loan to Canada.
We feel that the steps outlined above are necessary to
help prevent the Internal Revenue Service from reclas-
sifying the transaction as something other than a
dividend and disallowing ITI’s deemed paid foreign tax
credits associated with the dividend. We also feel
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