*2431 FOREIGN CORPORATION, INCOME AND EXCESS-PROFITS-TAX LIABILITY. - The petitioner, a foreign corporation, received during the year 1919 an income payment from sources within the United States. Held that petitioner is liable to taxes upon such income levied both by Title II and Title III of the Revenue Act of 1918.
*294 The Commissioner has determined that the tax liability of Aktieselskabet Det Ostasiatiske Kompagni for the year 1919 amounts to $1,697.85 income tax, and $3,064.58 excess-profits tax.
*295 The petition filed on behalf of the said company alleges that it is a foreign corporation not engaged in business in the United States, that the amount of $20,043.05 received by it in 1919 from a New York corporation did not constitute taxable income and further, that even if the said amount was taxable income it was not subject to an excess-profits tax as computed by respondent under section 328 of the Revenue Act of 1918.
FINDINGS OF FACT.
The 60-day deficiency notice dated May 22, 1926, asserting the proposed deficiency in controversy, *2432 was addressed to "Det Ostasiatiske Compagni c/o Mr. Charles Krebs, 9 Broadway, New York, N.Y."
On July 17, 1926, Charles Krebs filed a petition designating the said company as the petitioner in this proceeding and in his verification of the petition he stated that the said company had no officers in the United States and that he was its duly authorized attorney in fact.
Aktieselskabet Det Ostasiatiske Kompagni, hereinafter referred to as the petitioner, is a foreign corporation incorporated under the laws of the Kingdom of Denmark and its principal office is and was during 1919, at Copenhagen, Denmark. It also maintained branch offices in London, England, and in the Far East during 1919.
In July, 1917, Christian Larsen organized under the laws of the State of New York, the East Asiatic Co., New York Agency, Inc., hereinafter referred to as the New York co., with an authorized capital stock of $100,000 par value, all of which was owned by Larsen, a resident of New York. Larsen was neither a stockholder, officer nor employee of petitioner, and the two corporations had no officers or directors in common.
In September, 1917, the following agreement was entered into by petitioner*2433 and the New York Co.:
AGREEMENT, made the first day of September 1917, between AKTIESELSKABET DET OSTASIATISKE KOMPAGNI (the East Asiatic Company, Limited), a corporation organized and existing under the laws of the Kingdom of Denmark, party of the first part (hereinafter called the "Asiatic Company"), and THE EAST ASIATIC COMPANY, NEW YORK AGENCY, INC., a corporation organized and existing under the laws of the State of New York, U.S.A., party of the second part (hereinafter called the "New York Company").
WHEREAS, the Asiatic Company desires to engage the New York Company to represent its interests in New York, in connection with its vessels, cargoes and shipping, and both parties desire that all sales of the Asiatic Company's goods in the State of New York shall be made by the New York Company;
NOW THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto hereby agree as follows:
*296 I. The Asiatic Company will make no sales of its goods to any person, firm or corporation in the State of New YorkU.S.A., other than the New York Company; and it will extend to the New York Company all facilities for transacting*2434 business with its Eastern branches and will endeavor to have the New York Company appointed New York Agent for such other corporations, connected with the Asiatic Company, as have agents in New York.
II. Except by special agreement, in all cases where the New York Company sells goods which it has purchased, or arranged to purchase, from either the London office or the Copenhagen office of the Asiatic Company, the goods shall be shipped directly to the purchaser by the Asiatic Company, invoiced in the name of the New York Company; and the New York Company will assign the purchase price to the Asiatic Company and notify the purchaser to pay the same to the Asiatic Company.III. The Asiatic Company will allow the New York Company a discount of 1/4 of 1% on rubber and 1% on all other goods sold to the New York Company; and it is understood and agreed that on all prices quoted by the parties to each other such discount shall be allowed. Where the New York Company resells goods purchased from the Asiatic Company at an advance over the selling price to the New York Company, the New York Company will pay to the Asiatic Company, one-half the excess realized over the quoted price (the*2435 said discount not being deducted in computing such excess). The Asiatic Company will credit the New York Company and the New York Company will debit the Asiatic Company on the first of each month with the difference between the resale prices and the selling prices to the New York Company of all goods invoiced during the preceeding month, less the amount, if any, payable to the Asiatic Company on account of excess realized over the quoted prices as just provided.
IV. The New York Company will give such supervision to the shipping interests of the Asiatic Company in and around New York, as the Asiatic Company may, from time to time, direct, on customary terms; and it will also give such supervision to the buying interests of the Asiatic Company, in and around New York, as the Asiatic Company may, from time to time, direct on terms customary for exporters. The Asiatic Company will employ no other person, firm or corporation to supervise such matters in and around New York, during the operation of this agreement.V. In consideration of the exclusive privileges given to it, the New York Company will pay to the Asiatic Company on December 31, of each year, a sum equal to 25% of*2436 its gross income for the year. In case, however, the net income of the New York Company for the year should be less than the amount so payable to the Asiatic Company, the Asiatic Company will waive and surrender to the New York Company one-half the difference between the amount so payable and the net income; but no amount shall be paid to the Asiatic Company, if, after such payment, the operations of the New York Company for such year would result in a loss.
VI. The New York Company shall have no power to bind the Asiatic Company upon any contract of any description; and nothing herein contained shall be construed as giving such power. VII. This agreement may be terminated at any time by either party, upon thirty days' notice in writing to the other. If not so terminated, it shall continue in force until December 31, 1918.IN WITNESS WHEREOF, the parties have caused these presents to be duly executed, the day and year first above written.
*297 The above-quoted agreement was continued in force until December 31, 1919.
The New York Co. purchased goods from the petitioner in accordance with the terms of the agreement and resold them in the United States. All*2437 of the New York Co.'s orders for goods from petitioner were transmitted by cable or letter and accepted at the offices of petitioner outside of the United States.
During 1919 the New York Co. purchased ships' supplies for petitioner's vessels which put into port at New York, for which services it received from petitioner the customary commissions. The New York Co. had nothing to do with the ships' cargoes during 1919. All of petitioner's vessels were under charter to third parties, who had exclusive control of their movements and cargoes.
Until July, 1919, Larsen was the sole stockholder of the New York Co., but at that time the capital stock was increased to $200,000, the additional $100,000 of stock being sold to petitioner at par for cash, which was used to purchase all of the stock of the Russian-American Lines, Inc.
At the close of the year 1919 the New York Co. paid to petitioner the amount of $20,043.05 pursuant to article V of the agreement, that amount being computed as 25 per cent of the gross income of the New York Co. exclusive of the income of its subsidiary, the Russian-American Lines, Inc. In its consolidated tax return for the year 1919 the New York Co. *2438 took a deduction in the amount of $20,043.05 as "compensation to The East Asiatic Co. Ltd., Copenhagen, for trade privileges and financial facilities, as per agreement," which deduction has been allowed by respondent in his final audit of the New York Co.'s return.
OPINION.
TRUSSELL: The record in this case establishes the facts that during the year 1919 the petitioner was a foreign corporation and that it then received from a domestic corporation a payment of $20,043.05, which was made and received pursuant to the terms of a written contract, the provisions of which are set out in the findings of fact. The liability, if any, of the petitioner to income and profits taxes, or either of the same, is governed by the provisions of the Revenue Act of 1918.
Section 233(b) of the Revenue Act of 1918 provides:
In the case of a foreign corporation gross income includes only the gross income from sources within the United States, including the interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, dividends from resident corporations, and including all amounts received *298 (although paid under a contract for the sale of goods*2439 or otherwise) representing profits on the manufacture and disposition of goods within the United States. (Italics supplied.)
Section 237 of the Revenue Act of 1918 provides:
That in the case of foreign corporations subject to taxation under this title not engaged in trade or business within the United States and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items of income as is provided in section 221 a tax equal to 10 per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section: Provided, That in the case of interest described in subdivision (b) of that section the deduction and withholding shall be at the rate of 2 per centum.
In the Treasury Department regulations, made in pursuance of the Revenue Act of 1918, some of the pertinent provisions are:
ART. 503. Corporations liable to tax. - Every corporation, domestic or foreign, not exempt under section 231 of the statute, is liable to the tax. * * *
ART. 625. Returns of foreign corporations. - Every foreign corporation having income*2440 from sources within the United States must make a return of income on form 1120. If such a corporation has no office or place of business here, but has a resident agent, he shall make the return. It is not necessary, however, for it to be required to make a return that the foreign corporation shall be engaged in business in this country or that it have any office, branch, or agency in the United States.
Although the issue is raised it does not appear to be seriously contended on the part of the petitioner that the payment which is the subject matter of this action was not an income payment, and upon consideration of all the testimony and the record in this case we hold that the petitioner was in receipt of an income payment in the amount above mentioned and that it is liable to an income tax upon such income computed in accordance with the statute.
In respect of petitioner's liability to an excess-profits tax we find in section 301(b) that "every corporation" (with certain exceptions not important here) shall be subject to the excess-profits taxes levied by Title III of the Revenue Act of 1918, and in section 320(a)(3) there is a provision that the income subject to the excess-profits*2441 tas shall be the same income which is subject to the income tax under Title II.
In this Title III, levying excess-profits taxes, there is not only no exemption of foreign corporations, but, on the other hand, there are several provisions directly applicable to the computation of taxes upon such foreign corporations.
The petitioner challenges its alleged liability to an excess-profits tax on the ground that it was not engaged in business within the *299 United States and cites in support of its position several court decisions such as ; affd., . This and the other cases cited involve individual persons made subject to excess-profits tax under the Act of 1917 upon such part of the income of such persons as was derived from the carrying on of a business. There cases are not applicable to a corporation under the Act of 1918, whether such corporation be domestic or foreign.
We are thus brought to the conclusion that this petitioner is not only liable to the so-called normal tax levied by Title II of the Revenue Act of 1918, but is also liable to the excess-profits tax levied by Title III of*2442 said Act.
Petitioner has further challanged the legality of the excess-profits tax computed by the respondent on the further grounds that the petitioner has been compared with corporations engaged in the importing business and alleging that such corporations are not proper comparisons. The record does not show what corporations the respondent has used in arriving at his determination of the rate of excess-profits tax; neither has petitioner moved for the redetermination of its liability to excess-profits tax under the provisions of the Board's Rule 62(c). It appears, however, from the deficiency letter addressed to the petitioner that the excess-profits tax has been computed as in the amount of $3,064.58, which is approximately 15.3 per cent of petitioner's income from sources within the United States. This figure of excess-profits-tax liability appears on its face to be sufficiently modest in amount as not to warrant the presumption that it is out of proportion either in ratio or in total amount to taxes paid by other taxpayers, whether foreign or domestic, and we are of the opinion that the petitioner has no proper ground of complaint on account of the amount of the liability*2443 alleged.
Judgment will be entered for the respondent.