Executive Order 11198—Imposition of Interest Equalization Tax on Certain Commercial Bank Loans

By virtue of the authority vested in me by chapter 41 (sections 4911 through 4931) of the Internal Revenue Code of 1954, as added by the Interest Equalization Tax Act, approved September 2, 1964 (Public Law 88-563,78 Stat. 809), by section 301 of title 3 of the United States Code, and as President of the United States, it is hereby determined that the acquisition of debt obligations of foreign obligors by commercial banks in making loans in the ordinary course of the commercial banking business has materially impaired the effectiveness of the tax imposed by section 4911 of the Internal Revenue Code of 1954, as added by the Interest Equalization Tax Act, because such acquisitions have replaced acquisitions by United States persons, other than commercial banks, of debt obligations of foreign obligors which are subject to the tax imposed by section 4911, and it is hereby ordered that—

Section 1. The provisions of section 4931 shall apply to acquisitions by commercial banks of debt obligations of foreign obligors to the extent set forth herein.

Sec. 2. (a) Section 4914(j) (1) (A) (ii) and section 4915(c) (2) (A) shall continue to apply;

(b) Section 4914(b)(2)(A) shall continue to apply only to an acquisition of a debt obligation of a foreign obligor repayable exclusively in one or more currencies other than United States currency which is made by a commercial bank at its branch located outside the United States; and

(c) The tax imposed by section 4931 (c) shall apply to an acquisition of a debt obligation of a foreign obligor having a period remaining to maturity of one year or more and less than 3 years which is made by a commercial bank, other than the acquisition of a debt obligation of a foreign obligor—

(1) Arising out of a transaction described in section 4914(c) (1) (B), (2), (3), (4), or (5), or section 4914(d),,which is transferred in accordance with section 4914(j) (1) (A) (ii) or (iii); or

(2) Repayable exclusively in one or more currencies other than United States currency if such acquisition is made by a commercial bank at its branch located outside- the United States.

Sec. 3. An acquisition by a United States person which is a commercial bank of a debt obligation of a foreign obligor described in Executive Order No. 11175 dated September 2, 1964, shall be subject to the tax imposed pursuant to this order without regard to the provisions of Executive Order No. 11175.

Sec. 4. The Secretary of the Treasury or his delegate is authorized to prescribe from time to time such regulations, rulings, directions, and instructions, and to require such reports of information, as he shall deem necessary to carry out the purposes of this order.

Sec. 5. This order shall be effective with respect to acquisitions made during the period beginning on the day after the date on which such order is issued and ending on the date set forth in section 4911(d).

LYNDON B. JOHNSON

The White House,

February 10, 1965.