Interest-Equalization Tax Law and Legal Definition
Interest-equalization tax refers to a domestic tax measure imposed on a debt obligation of a foreigner when the obligation did not mature in a year. It was a tax on foreign investment by residents of the U.S. and was abolished in 1974.
The interest equalization tax is primarily regulatory. The purpose of the interest equalization tax was to restrict the outflow of American capital only when it is occasioned by a search for higher foreign interest rates, not when the motivation is longer range business or investment considerations. [Garrett v. United States, 479 F.2d 598, 600 (5th Cir.-OLD 1973)].