Note:Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of

November 15, 2006 (the "Model Treaty").

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:

will work due to the Non-Discrimination Article of the Model Treaty.

will work because of the Relief from Double Taxation Article of the ModelTreaty.

will fail because of the Limitation on Benefits Article of the Model Treaty.

will fail because of the Permanent Establishment Article of the Model Treaty.