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In order to decide issue (1), we must first decide how much
interest petitioner paid to GXE during each of the years in
issue, and then we must decide whether any of the interest paid
to GXE qualifies for exemption under the Agreement for the
Avoidance of Double Taxation and the Prevention of Tax Evasion
With Respect to Taxes on Income, U.S.-P.R.C., Apr. 30, 1984,
T.I.A.S. No. 12065 (China Agreement), either because GXE
collected the interest as an agent for Guangdong International
Trust & Investment Corp. (GITIC), a corporation resident in China
during the years in issue, or because the loan transaction with
GXE was in substance a loan transaction with GITIC.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, the supplemental stipulation of facts,
and the second supplemental stipulation of facts are incorporated
herein by this reference. Petitioner’s principal place of
business was in Houston, Texas, when the petition was filed.
Petitioner is a closely held corporation that was incorporated in
Delaware on December 2, 1987.
During the years in issue, petitioner engaged in loan
transactions with GITIC and GXE, two foreign corporations. GITIC
was a financial institution that was incorporated in 1980 under
the laws of the People’s Republic of China and, throughout the
years in issue, was wholly owned and controlled by the government
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