Source: https://www.legalcrystal.com/case/97295/american-chicle-co-vs-united-states
Timestamp: 2016-10-28 10:24:01
Document Index: 528172897

Matched Legal Cases: ['§ 131', '§ 131', '§ 131', '§ 238', '§ 238', '§ 238', '§ 19']

American Chicle Co Vs United States - Citation 97295 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize American Chicle Co. Vs. United States - Court Judgment	LegalCrystal Citationlegalcrystal.com/97295CourtUS Supreme CourtDecided OnJun-01-1942Case Number316 U.S. 450AppellantAmerican Chicle Co.RespondentUnited StatesExcerpt:.....subsidiaries of which it was sole stockholder. the
the sole matter in controversy is the proper method of arriving at the credit granted by § 131. that section permits a domestic corporation to credit against its tax the amount of income, war-profits, and excess profits taxes paid or accrued.....Judgment:
American Chicle Co. v. United States - 316 U.S. 450 (1942)
1. Under § 131(f) of the Revenue Acts of 1936 and 1938, allowing to a domestic corporation, in respect of dividend received from a foreign subsidiary, a tax credit of that proportion of "taxes paid" by the subsidiary which the amount of the dividend bears to the amount of the subsidiary's "accumulated profits" (
its income less taxes thereon), the word "taxes paid" are properly construed as meaning so much of the subsidiary's taxes as are attributable to its "accumulated profits," or the same proportion of the total taxes which the accumulated profits bear to the total profits. P.
316 U. S. 452
2. A change by the Commissioner of Internal Revenue in the administrative practice, to conform to the plain meaning of the Revenue Act, and operating prospectively, is not precluded by an antecedent administrative interpretation, though of long standing. P.
316 U. S. 454
This case involves the application of Section 131(f) of the Revenue Acts of 1936 and 1938, [
] which allows a tax credit to domestic corporations in respect of income received from foreign subsidiaries.
During the taxable years 1936, 1937, and 1938, the petitioner, a domestic corporation, received dividends from foreign subsidiaries of which it was sole stockholder. The
The sole matter in controversy is the proper method of arriving at the credit granted by § 131. That section permits a domestic corporation to credit against its tax the amount of income, war-profits, and excess profits taxes paid or accrued during the taxable year to any foreign country, with certain limits set by subsections (b)(1) and (2). The purpose of the provision, like that of its predecessor, § 238 of the Revenue Act of 1921, [
] is to obviate double taxation. [
Section 131(f), dealing with taxes of a foreign subsidiary, [
] provides that, for the purpose of the section, a domestic corporation receiving dividends from such a subsidiary "in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess profits taxes paid" by the subsidiary to a foreign country, "upon or with respect to the accumulated profits" of the subsidiary "from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits." "Accumulated profits" of the subsidiary are defined as
The parties are in agreement as to the fraction to be used in calculating the proportion. The numerator is the dividends received by the parent. The denominator is the "accumulated profits" of the subsidiary. The dispute relates to the multiplicand to which the fraction is to be applied. The petitioner says it is the total foreign taxes paid by the subsidiary. The respondent says it is the taxes paid upon or with respect to the accumulated profits of the subsidiary --
so much of the taxes as is properly attributed to the accumulated profits, or the same proportion of the total taxes which the accumulated profits bear to the total profits. The Court of Claims so held. [
] Since several decisions have gone the other way, [
] we granted certiorari. 315 U.S. 793.
If, as is admitted, the purpose is to avoid double taxation, the statute, as written, accomplishes that result. The parent receives dividends. Such dividends, not its subsidiary's profits, constitute its income to be returned for taxation. The subsidiary pays tax on, or in respect of, its entire profits; but, since the parent receives distributions out of what is left after payment of the foreign tax -- that is, out of what the statute calls "accumulated profits" -- it should receive a credit only for so much of the foreign
Section 240(c) of the Revenue Act of 1918 [
] allowed the domestic parent receiving dividends from a foreign subsidiary a credit for the same proportion of the taxes paid by the foreign corporation during the taxable year to any foreign country which the amount of the dividends received by the parent during the taxable year bore to the total taxable income of the subsidiary upon or with respect to which such taxes were paid.
In the Revenue Act of 1921, § 238(e) [
] was the analogous section. The draftsman of the section stated to the Senate Committee in charge of the measure:
The Treasury made no regulation applicable to § 238(e) of the Revenue Act of 1921. It provided a form for reporting the tax which sanctioned the petitioner's method of computing the credit, and, from 1921 to 1930, the Commissioner calculated credits for foreign subsidiaries' taxes by that method. In 1930, however, the Treasury promulgated a new form which required the credit to be computed in the way the Commissioner did in the present case, and promulgated Regulations 77 under the Revenue Act of 1932, which, in Article 698, required the computation of the credit in the same manner. The regulations have since remained unchanged:
Regulations 103 §§ 19.131-3 and 19.131-8. Although
the regulations definitely govern this case, and were made prior to the years in controversy, the petitioner insists that the antecedent administrative interpretation, long in force, renders it impossible for the Commissioner to promulgate a regulation changing for the future the earlier practice, even though the new regulation comports with the plain meaning of the statute. We think the contention cannot be sustained. [
91 F.2d 973;
International Milling Co. v. United States,
89 Ct.Cls. 128, 27 F.Supp. 592;
Aluminum Co. of America v. United States,
123 F.2d 615.