Burnet v. Chicago Portrait Co

Citation76 L.Ed. 587,285 U.S. 1,52 S.Ct. 275
Decision Date23 February 1932
Docket NumberNo. 378,378
PartiesBURNET, Com'r of Internal Revenue, v. CHICAGO PORTRAIT CO
CourtUnited States Supreme Court

The Attorney General and Mr. G. A. Youngquist, Asst. Atty. Gen., for petitioner.

[Argument of Counsel from pages 2-3 intentionally omitted] Mr. Arnold R. Baar, of Chicago, Ill., for respondent.

[Argument of Counsel from page 3 intentionally omitted] Mr. Chief Justice HUGHES delivered the opinion of the Court.

This proceeding was brought for the redetermination of a deficiency in income tax for the year 1923. The respondent, Chicago Portrait Company, is an Illinois corporation with its principal place of business at Chicago. It owned 51 per cent. of the capital stock of the International Art Company of Sydney, Australia, a foreign corporation. Respondent received dividends from the International Art Company and sought credit for a proportionate part of the income taxes paid by that corporation to the Commonwealth of Australia, to the State of New South Wales, and to the Dominion of New Zealand. Section 238(e) of the Revenue Act of 1921 (42 Stat. 227, 258, 259) permitted credit in the case of such taxes paid 'to any foreign country.' Credit was allowed on account of the income taxes paid to the Commonwealth of Australia and to the Dominion of New Zealand but was refused as to those paid to the State of New South Wales. The Board of Tax Appeals held that the respondent was entitled to the credit with respect to the last mentioned taxes also, and the Circuit Court of Appeals affirmed that decision. 16 B. T. A. 1129; 50 F.(2d) 683. This Court granted a writ of certiorari, 284 U. S. 607, 52 S. Ct. 36, 76 L. Ed. —.

The sole question is whether New South Wales is a 'foreign country' within the meaning of the applicable statute.1

The word 'country,' in the expression 'foreign country,' is ambiguous. It may be taken to mean foreign territory or a foreign government. In the sense of territory, it may embrace all the territory subject to a foreign sovereign power. When referring more particularly to a foreign government, it may describe a foreign state in the international sense, that is, one that has the status of an international person with the rights and responsibilities under international law of a member of the family of nations2; or it may mean a foreign government which has authority over a particular area or subject-matter, although not an international person but only a component part, or a political subdivision, of the larger international unit.3 The term 'foreign country' is not a technical or artificial one, and the sense in which it is used in a statute must be determined by reference to the purpose of the particular legislation.4

In the case of tariff acts, this Court said in Stairs v. Peaslee, 18 How. 521, 526, 15 L. Ed. 474, that the word 'country' has always been construed 'to embrace all the possessions of a foreign State however widely separated, which are subject to the same supreme executive and legislative control.' See, also, United States v. The Recorder, Fed. Cas. No. 16,129, 1 Blatchf. 218, 225-227; Campbell v. Barney, Fed. Cas. No. 2,354, 5 Blatchf. 221. Accordingly, in construing the Act of March 3, 1851 (9 Stat. 629, 630), providing that imported merchandise should be appraised at its market value at 'the principal markets of the country' from which it had been imported, the Court held that a commodity shipped from Halifax, Nova Scotia, should be appraised according to the value in the principal markets under the British rule, and these were found, in fact, to be London and Liverpool. After the ratification of the Treaty of Peace between the United States and Spain (30 Stat. 1754), Porto Rico and the Philippines ceased to be 'foreign country' under the tariff laws. De Lima V. Bidwell, 182 U. S. 1, 21 S. Ct. 743, 45 L. Ed. 1041; In re Fourteen Diamond Rings, 183 U. S. 176, 179, 22 S. Ct. 59, 46 L. Ed. 138. It followed that the term 'other countries' in the Commercial Convention with Cuba of 1903 (33 Stat. 2136, 2140) did not include the Philippine Islands. Faber v. United States, 221 U. S. 649, 658, 31 S. Ct. 659, 55 L. Ed. 897. Under the provisions of the Platt Amendment (31 Stat. 897), and the Constitution of Cuba, the Isle of Pines was de facto under the jurisdiction of Cuba and hence remained 'foreign country' within the meaning of the Tariff Act of 1897 (30 Stat. 151). Pearcy v. Stranahan, 205 U. S. 257, 265, 27 S. Ct. 545, 51 L. Ed. 793.

In construing legislation providing for the deportation of aliens 'to the country whence they came,' the place of emigration affords the dominant consideration. Thus, under the Immigration Act of 1917 (39 Stat. 874, 890 (8 USCA § 156)) the court held that an alien emigrating from Grodno, then a part of Russia, was properly deported to Poland, because at that time Grodno was a part of Poland. 'The term 'country," said the court, was used in the statute 'to designate, in general terms, the state which, at the time of deportation, includes the place from which the alien came.' Mesevich v. Tod, 264 U. S. 134, 136, 137, 44 S. Ct. 282, 283, 68 L. Ed. 591. The evident purpose of the statute determined the significance to be attached to the expression.

In the instant case, the question is one of credit for income taxes 'paid to any foreign country.' The word 'country' is manifestly used in the sense of government. And to decide what government fits the description, whether only that of a foreign power which may be considered an international person, or that of a political entity which, although not an international person, levies and collects income taxes which may be the subject of the intended credit, it is necessary to consider the object of the enactment and to construe the expression 'foreign country' so as to achieve, and not defeat, its aim. We think that the purpose of the statute is clear. The fact that the provision is for a credit to the domestic corporation, against income taxes payable here, of income taxes 'paid during the same taxable year to any foreign country,' itself demonstrates that the primary design of the provision was to mitigate the evil of double taxation. Cognate provisions in the case of individuals disclose a similar intent. Section 222(a)5 of the same Revenue Act (1921) provides that the income tax, in the case of a citizen of the United States, should be credited with the amount of any income taxes 'paid during the taxable year to any foreign country or to any possession of the United States.' In the case of an alien resident of the United States, the credit is conditioned upon reciprocal treatment. The resident alien is to be credited with 'the amount of any such taxes paid during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country.' 42 Stat. 249.6

In the case of domestic corporations, the purpose is also disclosed to facilitate their foreign enterprises. The provision of section 238(e) of the Revenue Act of 1921 indicates appreciation of the practical exigencies which lead to the foreign incorporation of subsidiaries for the extension by domestic corporations of their business abroad. This clearly appears to be the reason for the allowance by that act of a credit to a domestic corporation, against its income tax here upon dividends received from its foreign subsidiary, of a proportionate part, as defined, of the income taxes paid by that subsidiary to 'any foreign country.'7 The same provision applies to subsidiaries with respect to income taxes paid 'to any possession of the United States.'

In effectuating these purposes, it is manifest that the controlling consideration was the fact that the income tax was paid to a foreign government competent to lay the tax, and not the international status of that government. The burden upon the domestic corporation was the same whether the foreign government had international standing or was a lesser political entity which nevertheless had authority to impose the exaction upon the corporation or its subsidiary. And if credit was to be allowed here by reason of the payment of the income tax abroad, it made no difference to the Government of the United States whether the payment abroad was made to the one sort of foreign government or the other. The reasons underlying the allowance of the credit were applicable in either case.

An examination of the provisions of earlier income tax acts in which the expression 'foreign country' is found, does not support, but rather negatives, the conclusion that the term was used in the restricted sense for which the petitioner contends. In the Corporation Tax Act of 1909 (36 Stat. 113) deduction from gross income was allowed to the corporation for all sums paid by it within the year for taxes 'imposed by the government of any foreign country as a condition to carrying on business therein.' That corporation tax was an excise on the privilege of doing business in a corporate capacity. The provision with respect to taxes laid by a foreign government manifestly referred to that government which, as the statute said, imposed a privilege tax. There was no suggestion that the foreign government laying the tax must have an international status; it was enough that it had authority to require the payment 'as a condition to carrying on business.' In the Income Tax Act of 1913, paragraph G(b) (38 Stat. 173) deduction was allowed, in computing net income of a corporation, of 'all sums paid by it within the year for taxes imposed under the authority of the United States or of any State or Territory thereof, or imposed by the Government of any foreign country.' The Income Tax Act of 1916, §§ 5(a), 6(a) and 12(a) (39 Stat. 759, 760, 767, 769), provided for deduction from gross income of 'Taxes paid within the year imposed by the...

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  • Judging the Fed.
    • United States
    • Yale Law Journal Vol. 131 No. 2, November 2021
    • November 1, 2021
    ...to cases in the early 1900s, including Bates & Guild Co. v. Payne, 194 U.S. 106 (1904)); see also Cotnm'r v. Chi. Portrait Co., 285 U.S. 1, 16 (1932) (alluding to the "familiar principle . . . that great weight is attached to the construction consistently given to a statute by the execu......
    • United States
    • Albany Law Review Vol. 83 No. 2, December 2019
    • December 22, 2019
    ...316 U.S. 450, 451 (1942) (finding that the purpose of the foreign tax credit was to reduce double taxation); Burnet v. Chi. Portrait Co., 285 U.S. 1, 7 (1932) (finding that the the foreign tax credit was intended to reduce double taxation): 56 CONG. REC. APP. 677 (1918) (statement of Rep. K......

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