Rev. Rul. 74-11

Advice has been requested whether, under the circumstances described below, the acquisition of stock in a Canadian corporation is excluded from interest equalization tax (IET) under section 4917 of the Internal Revenue Code of 1954.

A, a United States person, acquired the original issue of the stock of X, a Canadian corporation. X then acquired a foreign stock issue which is treated as a domestic issue under section 4920(b) of the Code.

Section 4917 of the Code provides, in relevant part, that if the President of the United States shall at any time determine that the application of the IET imposed by section 4911 will have such consequences for a foreign country as to imperil or threaten to imperil the stability of the international monetary system, he may, by Executive Order, specify that the IET shall not apply to the acquisition by a United States person of stock or a debt obligation of a corporation of such foreign country to the extent that such stock or debt obligation is acquired as all or part of an original or new issue.

Section 1 of Executive Order 11304, dated September 12, 1966, 1966-2 C.B. 482, provides, in part, that the tax imposed by section 4911 of the Code shall not apply to the acquisition by a United States person of stock of any corporation, partnership, or trust organized under the law of Canada or a political subdivision thereof, or any individual resident in Canada, if such stock is acquired as all or part of an original or new issue.

However, section 2 of Executive Order 11304 provides, in part, that the exclusion from tax provided in section 1 shall not apply to the following:

(a) Any acquisition of stock of a company registered under the Investment Company Act of 1940 (54 Stat. 847; 15 U.S.C. 80a-1 to 80a-52); and

(b) Any acquisition of stock of a Canadian corporation, partnership, or trust formed or availed of for the principal purpose of acquiring stock of a Canadian or other foreign issuer other than stock described in section 4916(a) of the Code.

Section 4920(b) of the Code provides, in part, that a foreign corporation shall not be considered a foreign issuer with respect to any class of its stock provided certain conditions enumerated in section 4920(b) are met.

It is held in the instant case that the acquisition by X of the foreign stock issue which is treated as a domestic issue under section 4920(b) of the Code will not, of itself, cause such Canadian corporation to be "formed or availed of" for the prescribed purposes set forth in section 2(b) of Executive Order 11304.

Therefore, the acquisition by A of the stock of X is excluded from the IET under section 4917 of the Code provided all other requirements of that section have been met.