Rev. Rul. 69-11

Advice has been requested whether the exemption from the interest equalization tax provided by section 4914(b)(3) of the Internal Revenue Code of 1954 is applicable under the circumstances described below.

The taxpayer, a United States corporation, owns a business in a foreign country. Under the laws of the foreign country, owners of such businesses are required to deposit a specified amount with the government of the foreign country as a condition to doing business there. Such deposit may be made either in the form of cash or bonds of the foreign government. The taxpayer acquired and deposited bonds of the foreign government in the amount necessary to satisfy the deposit requirement.

Section 4914(b)(3) of the Code provides, in pertinent part, that the interest equalization tax shall not apply to tions by a United States person doing business in a foreign country to the extent that such acquisitions are reasonably necessary to satisfy minimum requirements relating to holdings of stock or debt obligations of foreign issuers or the acquisition of stock or debt obliga- obligors imposed by the laws of such foreign country. House Report No. 1046, Eighty-Eighth Congress, First Session, C.B. 1964-2, 708, at page 721, states that the exemption provided by section 4914(b)(3) of the Code is intended to apply to acquisitions of foreign securities which arise from business necessity and are not influenced by interest rate differentials.

In the instant case, the acquisitions of the bonds by the taxpayer was reasonably necessary to satisfy the minimum requirements of the foreign country as a condition to doing business in that country, and the acquisition was not made by the taxpayer to avail itself of an interest rate higher than that available in the United States.

Accordingly, the taxpayer will not be subject to the interest equalization tax with regard to the acquisition of the bonds discussed herein by reason of the exemption provided by section 4914(b)(3) of the Code.