The opinion of the Court was delivered by
SCHREIBER, J.This case, like its companion, Fedders Financial Corp. v. Director, Div. of Taxation, 96 N.J. 376 (1984), *409requires us to interpret provisions of the New Jersey Corporation Business Tax Act (the Act). The tax under the Act is measured by a corporation’s net worth and net income. One provision in dispute made a corporation’s “indebtedness owing directly or indirectly” to holders of 10% or more of the corporation’s outstanding shares includible in the corporation’s net worth. N.J.S.A. 54:10A-4(d).1 The other disputed provision stated that 90% of the amount paid in interest on such indebtedness may not be excluded in computing its net income. At issue again is the meaning of the phrase “owing directly or indirectly” in the context of a corporation’s debts owing to an affiliated (nonparent) company.
The Director of the New Jersey Division of Taxation, Department of the Treasury (the Director), determined that plaintiff, Mobay Chemical Corporation, in computing its tax liability under the Act for the year 1974, should have included in the calculation of plaintiff’s “net worth” under N.J.S.A. 54:10A-4(d) and -4(e) an indebtedness owed to an affiliated corporation, and should not have excluded when calculating “net income” under N.J.S.A. 54:10A-4(k)(2)(E) and -4(e) 90% of the interest on this debt. The Director, basing his decision on these two statutory provisions, denied plaintiff’s refund claim for $68,-826.77.
The taxpayer’s appeal to the then-existing Division of Tax Appeals was transferred to the Tax Court in accordance with N.J.S.A. 2A:3A-26. The Tax Court upheld plaintiff’s claim for a refund. 3 N.J. Tax 597 (1981). In an unpublished per curiam opinion the Appellate Division affirmed, substantially for the reasons expressed in the Tax Court’s opinion. We granted the Director’s petition for certification, 93 N.J. 274 (1983), and affirm for the same reasons expressed in our *410opinion in Fedders v. Director, Div. of Taxation, supra, decided this day.
The parties stipulated the facts. Plaintiff, a New Jersey corporation, was the product of a merger in 1971 of six affiliated companies of Farbenfabriken Bayer Aktiengesellschaft (Bayer A.G.), a corporation organized under the laws of the Federal Republic of Germany. Plaintiff has been primarily involved in manufacturing and marketing chemical products such as polyurethanes, thermoplastics, and synthetic fibers. As of December 31, 1974, the relevant date for this tax assessment under the Act, plaintiff's stock was owned by Rhinechem Corporation, whose stock in turn was owned by Bayer International Finance N.V., whose stock in turn was owned by Bayer A.G. Another wholly owned subsidiary of Bayer A.G. was Baychem Funding Corporation (Baychem Funding), whose sole function was to serve as a vehicle for debt financing for the plaintiff. Another Bayer A.G. subsidiary that played a part in the debt financing was Bayer Nederland B.V. The corporate schematic was as follows:
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On December 31, 1974, the plaintiff was indebted in the principal amount of $56,000,000 to Baychem Funding. At issue is whether this indebtedness owed to an affiliated corporation with a common parent, Bayer A.G., which the Director claims is owed indirectly to that parent, is includible in calculating the plaintiff’s net worth. Also at issue is whether 90% of the interest paid by the plaintiff on that indebtedness is includible. in the plaintiff’s net income.
*411To determine if the $56,000,000 debt is owed directly or indirectly to Bayer A.G., it is necessary to examine the history and reason for the debt. In 1971, when the predecessor corporations were merged into the plaintiff, the plaintiff assumed the debts of one of its predecessors owed to The Prudential Insurance Company of America (Prudential) and the Equitable Life Assurance Society of the United States (Equitable Life). Subsequently, the plaintiff entered into new note agreements with Prudential and Equitable Life increasing the indebtedness by additional borrowings so that the total loan was $55,000,000. These debts are not at issue. What is important is that these note agreements, like the prior agreements, prohibited plaintiff from entering into any long-term debt obligations, except with Bayer A.G. or a subsidiary of Bayer A.G. In order, among other things, to obtain additional funds without violating the conditions in the note agreements, it was decided that an affiliated company would borrow funds from the public and in turn make loans to plaintiffs predecessor. Accordingly, in 1969, Bayer International Finance issued and sold on the European market $75,000,000 of its 6% bonds due November 1, 1981. Bayer International Finance in turn loaned $56,000,000 of these proceeds to three of plaintiffs predecessors. Upon the merger of these debtor companies into plaintiff, the debt was consolidated and assumed by plaintiff. The promissory notes of the plaintiff evidencing this indebtedness were purchased in 1973 from Bayer International Finance by Bayer Nederland B.V., another subsidiary of Bayer A.G.
In 1972 Baychem Funding was formed for the sole purpose and exclusive business of serving as a vehicle to enable plaintiff to borrow in the United States in conformity with the covenants contained in plaintiffs note agreements with Prudential and Equitable Life. In 1973 Baychem Funding borrowed from five banks and used the loan proceeds to purchase from Bayer Nederland B.V. the plaintiff’s promissory notes in the aggregate face amount of $56,000,000. Baychem Funding simultaneously entered into a loan agreement with plaintiff under *412which plaintiff received its cancelled promissory notes from Baychem Funding and, in exchange, plaintiff issued five new promissory notes to Baychem Funding in the aggregate face amount of $56,000,000. Each note was for the same sum as one of the promissory notes Baychem Funding had given to each of the five banks. Bayer A.G. unconditionally guaranteed the payment of the principal and interest on plaintiffs notes.
The principles we have enunciated today in Fedders Financial Corp. v. Director, Div. of Taxation, supra, are equally applicable here. First, it is clear that plaintiff was not directly or indirectly obligated to its immediate parent, Rhinechem Corporation.2 Second, plaintiff was not directly or indirectly obligated to its indirect parent, Bayer A.G., for the $56,000,000. Unlike the indication in the opinion of the Tax Court, 3 N.J. Tax at 607, an indebtedness owed by the taxpayer to an affiliated corporation is presumed to be indirectly owed to the common parent, unless the affiliated corporation is shown to have been the conduit of funds from a non-affiliated source.
The plaintiff is entitled to exclude from its net worth the debts aggregating $56,000,000 owed to Baychem Funding and to deduct the entire amount of the interest paid on that indebtedness for the year 1974. The judgment is affirmed.
This provision was eliminated by L.1982, c. 55, § 1, effective as of July 1, 1984, id. § 3. However, it is relevant and material in this case, which involves taxes for prior years.
No issue has been raised as to whether Bayer A.G.’s indirect or equitable ownership of plaintiff’s stock brings it within the statutory classification as a "[holder] of 10% or more of the aggregate outstanding shares of the taxpayer’s [plaintiff’s] capital stock of all classes,” N.J.S.A. 54:10A-4(d), and we need not pass on the point.