ABSTRACT
In 1983, two Senate Finance Subcommittees-the Savings, Pensions, and Investment Policy Subcommittee and the Taxation and Debt Management Subcommittee-held a joint hearing on 1557, a bill that would repeal the U. S. withholding tax on portfolio interest. In H. R. 3025 a CFC would not qualify for the exemption on interest on bearer or registered obligations paid by U. S. persons. The reason for this stems from the desire to avoid the problems arising from two factors. First, the law in effect at the time of the hearings treated dividends paid by a Controlled foreign corporations (CFC), and imputable to "interest earned on U. S. loans," as "foreign source income. Thus CFCs can effectively convert income from U. S. to foreign source." Second, at the time of the hearings, a CFC might have deferred its U. S. tax liabilities "on foreign source interest income unless investment income constituted 10 percent or more of its gross income".
