4. That the name and address of the owner of the interest is as follows:

Industrias Hondurenas, S.A. de C.V.

Room 207, Banco Atlantida

Tegucigalpa, Republic of Honduras

5. That such owner is neither a citizen nor a resident of the U.S. but is a Honduran corporation;

6. That such owner has at no time during the current taxable year had a permanent establishment in the United States.

The treasurer of MPI filed a copy of the letter from Industrias with the Director of International Operations, Internal Revenue Service, Washington, D.C., as an enclosure to his letter, dated April 7, 1964, which stated:

We are pleased to enclose herewith one copy of a letter of information which was received from Industrias Hondurenas, S.A. de C.V. under date of March 31, 1964 and over the signature of Policarpo Callejas, Secretary-Treasurer.

The subject matter of the letter concerns a promissory note issued by Mechanical Products, 1971 U.S. Tax Ct. LEXIS 88">*101 Inc. on April 1, 1963 in the amount of $ 2,250,000.00, in favor of Industrias Hondurenas, S.A. de C.V.

In forwarding the notification copy to you we understand we have complied with United States Withholding Regulations Section 515.3(d)(2).

Messrs. Cummings & Lockwood, counsel to MPI, advised MPI that in accordance with article IX of the convention and section 515.3 of the withholding regulations prescribed under the convention, MPI was not required to withhold tax on the payment of interest to Industrias. No tax was withheld on the payments of interest during 1964 and 1965 to Industrias by MPI.

The convention between the United States and Honduras was terminated on December 31, 1966.

The 4-percent sinking fund promissory note issued by MPI in the amount of $ 2,250,000 and transferred to Industrias was repaid in full on June 14, 1967.

OPINION

In this case, MPI, a United States corporation, was a wholly owned subsidiary of the petitioner (also a United States corporation) which in turn was a 99.997-percent subsidiary of ECL, a Bahamiam corporation. 56 T.C. 925">*930 ECL also owned all outstanding stock of CCN, an Ecuadorian corporation.

In April 1963, MPI borrowed $ 2,250,000 from ECL and1971 U.S. Tax Ct. LEXIS 88">*102 issued its 4-percent sinking fund promissory note in recognition of the debt. In March 1964, Industrias was incorporated under the laws of Honduras with all of its stock being held by CCN. ECL then transferred the note of MPI to Industrias in exchange for nine of the latter's notes. Each of the nine notes was payable on demand, each note was for the same principal amount of $ 250,000, and each carried the same 4-percent annual interest rate.

Generally, section 1441(a)²1971 U.S. Tax Ct. LEXIS 88">*103 requires "all persons, in whatever capacity acting," to withhold taxes on payment of any items of income specified in section 1441(b)³ to "any nonresident alien individual" or to "any foreign partnership." Section 1441(b) designates interest as one of the items of income subject to section 1441(a). Section 1442(a)⁴ requires a tax of 30 percent to be "withheld at the source in the same manner and on the same items of income" as established in section 1441 if there is a payment of any of the designated income items to a foreign corporation "subject to taxation."

Under this statutory framework, MPI ordinarily would have been required to withhold tax on the interest which is paid to Industrias. However, during 1964 and 1965, there was in force a "United States-Honduras Income Tax Convention" 1971 U.S. Tax Ct. LEXIS 88">*104 (the convention was terminated on December 31, 1966) to provide for "the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on incomes." Article IX of the convention provided that interest paid by a United States corporation to a Honduran corporation not having a permanent establishment in the United States was to be exempt from United States tax.

56 T.C. 925">*931 On the basis of the convention, MPI claimed exemption from the withholding provision applicable to United States source income paid to foreign corporations, and having ostensibly conformed to the literal requirements of the withholding regulations prescribed under the convention, MPI did not withhold tax.

The question for decision is whether the convention was applicable to the facts and circumstances of this case so as to exempt MPI from the requirements of withholding income tax on interest payments which it made to a foreign corporation, or whether petitioner, as successor by merger to MPI, is now liable for such taxes.

The respondent argues that the organization of Industrias and its existence as a corporate entity should be disregarded for tax purposes. He concludes that ECL should be 1971 U.S. Tax Ct. LEXIS 88">*105 deemed the true owner and recipient of the interest in question with the consequence that petitioner is now liable for the failure of MPI to withhold income tax.

Petitioner claims that an exemption from withholding flows from the exemption from taxation for interest found in article IX of the convention which provides in pertinent part:

Interest * * * from sources within one of the contracting States received by a * * * corporation or other entity of the other contracting State not having a permanent establishment within the former State * * * shall be exempt from tax by such former State.

In support of its claim for exemption from taxation under article IX, petitioner argues that Industrias conformed to the definition of a corporation established by article II, section (1)(g), in that it was "a corporation or other entity formed or organized in Honduras or under the laws of Honduras" and that it was therefore a corporation for purposes of article IX. ⁵ On this basis, the petitioner concludes that Industrias cannot be disregarded as a corporate entity and that the interest paid to Industrias by MPI was exempt from United States taxation under article IX thus relieving MPI of its1971 U.S. Tax Ct. LEXIS 88">*106 duty to withhold income tax on such interest.

The United States Constitution provides in article VI, clause 2, that:

all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

Thus, all treaties made under the authority of the United States are to be the supreme law of the land and superior to domestic tax laws. Cook v. United States, 288 U.S. 102">288 U.S. 102 (1933). This concept has been 56 T.C. 925">*932 expressly recognized in section 894(a) which, during the years in question, provided:

SEC. 894. INCOME AFFECTED BY TREATY.

(a) Income Exempt Under Treaty. -- Income of any 1971 U.S. Tax Ct. LEXIS 88">*107 kind, to the extent required by any treaty obligation of the United States, shall not be included in gross income and shall be exempt from taxation under this subtitle.

Consequently, neither the courts nor the taxing authorities may establish definitions for terms contained in a treaty contrary to those definitions expressly set forth in that treaty. Where the formal requirements of a definition established by a treaty are met, the benefits flowing from a treaty as the result of conforming to such formal definitional requirements cannot be denied by an inquiry behind those formal requirements. Maximov v. United States, 373 U.S. 49">373 U.S. 49 (1963); Bacardi Corp. v. Domenech, 311 U.S. 150">311 U.S. 150 (1940).

Article II, the definitional article of the convention, provides in section (1)(g):

(g) The term "Honduran enterprise" means an industrial or commercial or agricultural enterprise or undertaking carried on by a resident of Honduras * * * or a fiduciary of Honduras or by a Honduran corporation or other entity; the term "Honduran corporation or other entity" means a corporation or other entity formed or organized in Honduras or under1971 U.S. Tax Ct. LEXIS 88">*108 the laws of Honduras.

Article II, section (1)(f), is structured in the same manner with "United States" standing in place of "Honduras" or "Honduran" as the case may be.

The term "corporation" is nowhere defined in the convention in its own right, and in article II, sections (1)(f) and (1)(g), the definition of a corporation of a contracting State appears in the definition of an "enterprise" of such contracting State. However, in the absence of any indication to the contrary, it is clear that in defining the term "corporation" for one purpose, the contracting States intended that definition to apply in other contexts as well. Consequently, we are convinced that the term "corporation," as utilized in article IX, refers to a corporation or other entity formed or organized in one of the contracting States or under the laws of one of the contracting States.

Thus, Industrias, being a corporation organized under the laws of Honduras and conforming to the specific definition of "Honduran corporation" established by article II, section (1)(g), of the convention, was a "corporation or other entity" of one of the contracting States within the meaning of article IX. Therefore, the convention1971 U.S. Tax Ct. LEXIS 88">*109 prevents us from ignoring the corporate entity as such. 373 U.S. 49">Maximov v. United States, supra; 311 U.S. 150">Bacardi Corp. v. Domenech, supra.

However, while we agree with the petitioner that Industrias was a "corporation" for purposes of article IX, and that it therefore cannot be disregarded, we do not agree with the petitioner's conclusion that 56 T.C. 925">*933 this factor alone was sufficient to qualify the interest in question for the exemption from taxation granted by article IX. Rather, we must determine whether the transaction in question conforms to the other requirements established by article IX.

In seeking to give substance to the terms of article IX which establish those requirements, we are free under article II, section (2), ⁶ of the convention, to assign to those terms "not otherwise defined" by the convention the meanings which would normally attach to such terms under our laws "unless the context otherwise requires." In so doing, we recognize that the fact that the actions taken by the parties in this case were taken to minimize their tax burden may not by itself be utilized to deny a benefit to which the parties are otherwise entitled under the convention. 1971 U.S. Tax Ct. LEXIS 88">*110 See Gregory v. Helvering, 293 U.S. 465">293 U.S. 465, 293 U.S. 465">469 (1935). And we are aware of the necessity for liberal construction in determining the applicability of the convention. Jordan v. Tashiro, 278 U.S. 123">278 U.S. 123, 278 U.S. 123">127 (1928).

However, "To say that we should give a broad and efficacious scope to a treaty does not mean that we must sweep within the Convention what are legally and traditionally recognized to be * * * taxpayers not clearly within its protections." 373 U.S. 49">Maximov v. United States, supra at 56. In deciding whether a given taxpayer in a specific instance is protected by the terms of a treaty, we must "give1971 U.S. Tax Ct. LEXIS 88">*111 the specific words of a treaty a meaning consistent with the genuine shared expectations of the contracting parties," and in so doing, it is necessary to examine not only the language, but the entire context of agreement. Maximov v. United States, 299 F.2d 565, 568 (C.A. 2, 1963), affd. 373 U.S. 49">373 U.S. 49 (1963).

Applying these principles, we find that the interest payments in question were not "received by" a corporation of a contracting State (herein a Honduran corporation) within the meaning of article IX of the convention. As utilized in the context of article IX, we interpret the terms "received by" to mean interest received by a corporation of either of the contracting States as its own and not with the obligation to transmit it to another. The words "received by" refer not merely to the obtaining of physical possession on a temporary basis of funds representing interest payments from a corporation of a contracting State, but contemplate complete dominion and control over the funds.

The convention requires more than a mere exchange of paper between related corporations to come within the protection of the exemption from1971 U.S. Tax Ct. LEXIS 88">*112 taxation granted by article IX of the convention, and on 56 T.C. 925">*934 the record as a whole, the petitioner has failed to demonstrate that a substantive indebtedness existed between a United States corporation and a Honduran corporation.

In this case, ECL transferred the $ 2,250,000 4-percent sinking fund promissory note of MPI to Industrias in exchange for nine notes of Industrias with each of those notes payable on demand, each with the same principal amount of $ 250,000, and each with the same 4-percent interest rate. In essence, Industrias acquired the $ 2,250,000 4-percent sinking fund promissory note of MPI by giving nine notes totaling $ 2,250,000 at 4-percent interest. Industrias obtained exactly what it gave up in a dollar-for-dollar exchange. Thus, it was committed to pay out exactly what it collected, and it made no profit on the acquisition of MPI's note in exchange for its own.

In these circumstances, where the transfer of MPI's note from ECL to Industrias in exchange for the notes of Industrias left Industrias with the same inflow and outflow of funds and where MPI, ECL, and Industrias were all members of the same corporate family, we cannot find that this transaction1971 U.S. Tax Ct. LEXIS 88">*113 had any valid economic or business purpose. Its only purpose was to obtain the benefits of the exemption established by the treaty for interest paid by a United States corporation to a Honduran corporation. While such a tax-avoidance motive is not inherently fatal to a transaction, see 293 U.S. 465">Gregory v. Helvering, supra, such a motive standing by itself is not a business purpose which is sufficient to support a transaction for tax purposes. See Knetsch v. United States, 364 U.S. 361">364 U.S. 361 (1960); Higgins v. Smith, 308 U.S. 473">308 U.S. 473 (1940); 293 U.S. 465">Gregory v. Helvering, supra.

In effect, Industrias, while a valid Honduran corporation, was a collection agent with respect to the interest it received from MPI. Industrias was merely a conduit for the passage of interest payments from MPI to ECL, and it cannot be said to have received the interest as its own. Industrias had no actual beneficial interest in the interest payments it received, and in substance, MPI was paying the interest to ECL which "received" the interest within the meaning of article IX. Consequently, 1971 U.S. Tax Ct. LEXIS 88">*114 the interest in question must be viewed as having been "received by" an entity (ECL) which was not a "corporation or other entity" of one of the contracting States involved herein, and we therefore hold that the interest in question was not exempt from taxation by the United States under article IX of the convention.

Having determined that the interest received by Industrias from MPI was not exempt from taxation by the United States under article IX of the convention because it was not "received by" a corporation of one of the contracting States (herein a Honduran corporation) within 56 T.C. 925">*935 the meaning of that article, we must now face the question as to whether MPI (a United States corporation) was under any obligation to withhold taxes in the absence of an initial determination that the interest did not qualify for the benefits of the convention and where it had ostensibly complied with all regulations providing for its exemption from withholding on the interest payments it made to a foreign corporation.

Under normal circumstances, we would answer this question in the negative. However, in this case, the Commissioner was misled by the insufficiency of MPI's statement setting1971 U.S. Tax Ct. LEXIS 88">*115 forth the facts upon which the Commissioner would ordinarily make an appropriate determination. In seeking to comply with the withholding regulations so as to obtain the protection of the convention, Industrias sent a letter to MPI notifying MPI that it (Industrias) was the owner of the April 1, 1963, promissory note, that the interest payable was exempt from United States tax under article IX of the convention, that it was not a resident or citizen of the United States, and that it did not have a permanent establishment in the United States. The letter did not specify that Industrias had acquired the note from ECL, the corporation to which the note had originally been given.

In compliance with the withholding regulations, MPI filed a copy of the letter from Industrias with the Internal Revenue Service and enclosed a letter which stated in part:

The subject matter of the letter concerns a promissory note issued by Mechanical Products, Inc. on April 1, 1963 in the amount of $ 2,250,000.00, in favor of Industrias Hondurenas, S.A. de C.V. [Emphasis supplied.]

This letter from MPI to the Internal Revenue Service did not describe or discuss the relationship of ECL to the note 1971 U.S. Tax Ct. LEXIS 88">*116 or the transfer of the note from ECL to Industrias.

In these circumstances, where the Commissioner was not fully apprised of all the facts and circumstances surrounding the issuance of the April 1, 1963, note and its subsequent history and where MPI, Industrias, and ECL were all related corporations, the respondent cannot be faulted for his inaction. Consequently, MPI's right to rely on the respondent's inaction as a basis for its failure to withhold cannot be sustained. Therefore, we hold that MPI and petitioner, as the successor to MPI by virtue of merger, were and are liable for the withholding taxes on the interest paid under the note issued by MPI to a foreign entity.

Notwithstanding our holding with respect to the liability of the petitioner for withholding taxes, we do not find petitioner, as successor by merger to MPI, liable for the addition to tax for failure to file a 56 T.C. 925">*936 return provided for in section 6651(a)(1). ⁷The failure to file a return on the advice of counsel cannot be said to have been due to willful neglect. Daisy M. Twinam, 22 T.C. 83">22 T.C. 83 (1954), acq. 1954-2 C.B. 6; C. R. Lindback Foundation, 4 T.C. 652">4 T.C. 652, 4 T.C. 652">667 (1945).1971 U.S. Tax Ct. LEXIS 88">*117 See also Haywood Lumber & Min. Co. v. Commissioner, 178 F.2d 769 (C.A. 2, 1950).

1971 U.S. Tax Ct. LEXIS 88">*118 Decision will be entered under Rule 50.