CORPORATION organized under the laws of the UNITED STATES, owned 100 percent of the STOCK of S, an ANTILLES CORPORATION;

 

In Rev. Rul. 84-153, 1984-2 C.B. 383, the Commissioner took the position that a NETHERLANDS ANTILLES financing subsidiary was a mere conduit for interest payments to foreign bondholders even though the subsidiary was adequately capitalized. The facts in Rev. Rul. 84-153, supra, are essentially as follows: (1) P, a CORPORATION organized under the laws of the UNITED STATES, owned 100 percent of the STOCK of S, an ANTILLES CORPORATION; (2) to upgrade the production facilities of P's wholly owned domestic subsidiary, R, S SOLD BONDS to foreign persons in public offerings outside the United States on Sept. 1, 1984; (3) S lent the proceeds from the bond offerings to R at a rate of interest that was 1 percentage point higher than the rate payable by S on the bonds; (4) R made timely payments to S and S made timely payments to its bondholders; (5) S's excess revenue after expenses was retained by S; (6) neither P, R, nor S was thinly capitalized. The revenue ruling does not mention any debt-to-equity ratio, nor does it explain the meaning of "thinly capitalized". The revenue ruling concludes:

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