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USAco, a domestic corporation, is a wholly-owned subsidiary of HKco, a Hong Kong corporation. The U.S. does not have a tax treaty with Hong Kong,
USAco, a domestic corporation, is a wholly-owned subsidiary of HKco, a Hong Kong corporation. The U.S. does not have a tax treaty with Hong Kong, but both the U.S. and Hong Kong do have a treaty with country F that eliminates all withholding taxes. To avoid the 30% withholding tax that USAco must withhold on all interest payments to HKco, HKco forms FORco, a country F corporation, which will borrow the money from HKco and relend the money to USAco. This tax planning technique:
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