1. The Revenue Act of 1928 provides that, in the case of a
citizen of the United States, the income tax imposed by the Act
shall be credited (up to a specified limit) with the amount of any
"income taxes paid" during the taxable year to any foreign country.
that the meaning of the phrase "income taxes paid" is
to be found in our own revenue laws, rather than in the statutes
and decisions of the foreign country to which deductible tax
payments are said to have been made. P. 302 U. S.
2. Under the British law, as found in this case, a corporation
pays the "standard" (normal) income tax on its profits, computed at
the rate in force when it received them. When the profits are
divided, the shareholder is not liable to any tax in respect of his
dividend unless his income is such as to subject him to a surtax.
In paying a dividend, the corporation has express permission to
deduct "the tax appropriate thereto," and is directed to certify to
the shareholder the gross amount of the dividend, the rate and
amount of the income tax "appropriate" to the gross amount, and the
net amount actually paid the shareholder. The tax "appropriate" to
the dividend is computed by applying the standard rate for the year
of distribution to the value of the money or property distributed,
and will equal the tax at the standard rate paid by the corporation
if, and only if, that rate was the same for the year in which the
profits were earned as in the year when they are distributed. The
shareholder's surtax is computed upon the gross dividend -- the
dividend that he actually receives plus the tax deducted by the
corporation. If his income is exempt, or less than the minimum
subject to surtax, refund is made accordingly. The purpose of the
certificate is to aid him in computing his surtax and in securing
the benefit of any refund.
Page 302 U. S. 574
(1) That (aside from any question of surtax) the amount so
certified as the tax "appropriate" to a dividend is not a tax paid
by the shareholder, and cannot be credited against his United
States income tax under Rev. Act 1928, § 131(a), as a tax paid to a
foreign country. P. 302 U. S.
(2) It is not deductible from his gross income under § 23(c)(2)
of that Act, which allows deduction of income taxes imposed by the
authority of any foreign country. P. 302 U. S. 583
3. Departmental tax rulings not promulgated by the Secretary of
the Treasury are of little aid in interpreting a tax statute. P.
302 U. S.
4. Where the meaning of a statute is plain, subsequent
reenactment does not adopt contrary administrative construction.
5. The presumption that Congress, in reenacting a statute, can
ascertain the course of administrative interpretation and, knowing
its own intent, will correct the administrative ruling if mistaken
cannot apply to rulings upon the intent of other legislative
bodies. Rulings of our taxing authorities upon the force and effect
of a tax law of a foreign country cannot have any more binding
effect on courts than in the case of any determination of fact
which calls into operation the taxing statutes. P. 302 U. S.
86 F.2d 718 affirmed.
91 F.2d 973 reversed.
pp. 664, 677, to review judgments of
two Circuit Courts of Appeals, one of which reversed, while the
other affirmed, a decision of the Board of Tax Appeals, 33 B.T.A.
127, upholding deficiency assessments on income taxes.
Page 302 U. S. 575
MR. JUSTICE STONE delivered the opinion of the Court.
In their British income tax returns, stockholders in British
corporations are required to report as income, in addition to the
amount of dividends actually received, amounts which reflect their
respective proportions of the tax paid by the corporation on its
own profits. The principal question raised by these petitions is
whether these amounts constitute "income . . . taxes paid or
accrued during the taxable year to (a) foreign country," so as to
entitle the stockholders, if they are citizens of the United
States, to credits of those amounts upon their United States income
tax, by virtue of section 131(a)(1) of the Revenue Act of 1928. A
further question is whether any of the amounts not so available as
a credit may be deducted from gross income under section 23(c)(2)
of the Act for the purpose of ascertaining the net income subject
Petitioner in No. 55 and respondent in No. 505, hereafter called
the taxpayers, received cash dividends during the taxable years
1929 and 1931, respectively, on their stock in three British
corporations. Each of the corporations having itself paid or become
liable to pay the British tax on the profits thus distributed, no
further exaction at the "standard" (normal) rate was due the
British government on account of the distribution from either the
Page 302 U. S. 576
or the corporation. [Footnote
] Only in the case of individuals whose income exceeds a
stated amount is a surtax levied. In these circumstances, the
corporations are directed to certify to shareholders at the time of
sending out warrants for the dividends, the gross amount from which
the income tax "appropriate thereto" is deducted, the rate and
amount of the income tax appropriate to the gross amount, and the
net amount actually paid. [Footnote
The tax "appropriate" to the dividend is computed by applying
the standard rate for the year of distribution to the value of the
money or other property distributed. [Footnote 3
] The amount so computed will equal the tax paid
at the standard rate by the corporation on its profits if, but only
if, the tax rate is the same in the year when the profits are
earned as in the year when they are distributed.
One of the companies availed itself of the statutory permission
] to declare a gross
dividend, from which it deducted the tax before actual
distribution, certifying to the
Page 302 U. S. 577
taxpayers that the dividend would be paid "less" income tax. The
other two companies declared the dividend in the amount distributed
to stockholders and certified that it was "free of tax." The
certificates of the latter did not purport to show any deduction of
tax from a gross dividend, but did indicate the amount of the tax
appropriate to the dividend and showed the same net return to
stockholders as if the tax had been deducted from a computed gross
In their returns transmitted to the Department of Inland Revenue
of the British government, the taxpayers reported as income subject
to surtax the amount of income taxes appropriate to their
dividends, in addition to the money actually received, and paid
surtaxes on that total sum. In their United States income tax
returns for those years, the taxpayers included in gross income the
entire sums so reported in the British returns. Up to the limit set
by § 131(b), they claimed as credits against the tax payable to the
United States the amount of British tax appropriate to the
dividends, as well as the amount of surtax paid. A deduction from
gross income was claimed under § 23(c)(2), for the amount by which
the limit was exceeded.
Deficiency assessments of the taxpayers were brought to the
Board of Tax Appeals for review. There, the issues were narrowed to
the questions now before us, whether the taxpayers, after adding to
gross income the amounts included in the British returns as taxes
appropriate to the dividends received, were then entitled to deduct
those amounts from the tax as computed, to the extent permitted by
§ 131(b), and whether the excess was a permissible deduction from
The Board held that the sums in dispute should not have been
included in gross income, because they represented neither property
received by the taxpayers nor the discharge of any taxes owed by
them to the British
Page 302 U. S. 578
government. It held further that § 131(a)(1) of the Revenue Act
of 1928, which directs that the income tax be credited with "the
amount of any income, . . . taxes paid or accrued during the
taxable year to any foreign county," is inapplicable because the
United Kingdom fails to tax dividends at the normal rate, and hence
the taxes appropriate to dividends were paid by the corporations,
rather than the taxpayer stockholders.
In No. 55, the Circuit Court of Appeals for the Second Circuit
affirmed the determination of the board, 86 F.2d 718, since
followed by that Circuit in F. W. Woolworth Co. v. United
91 F.2d 973, and the Circuit Court of Appeals for the
Third Circuit, in No. 505, reversed,
91 F.2d 534,
following a decision of the Circuit Court of Appeals for the First
Circuit in United Shoe Machinery Corp. v. White,
363. We granted certiorari to resolve this conflict of decision,
and because of the importance of the question in the administration
of the revenue laws.
At the outset it is to be observed that decision must turn on
the precise meaning of the words in the statute which grants to the
citizen taxpayer a credit for foreign "income taxes paid." The
power to tax and to grant the credit resides in Congress, and it is
the will of Congress which controls the application of the
provisions for credit. The expression of its will in legislation
must be taken to conform to its own criteria unless the statute, by
express language or necessary implication, makes the meaning of the
phrase "paid or accrued," and hence the operation of the statute in
which it occurs depend upon its characterization by the foreign
statutes and by decisions under them. Cf. Crew Levick Co. v.
Pennsylvania, 245 U. S. 292
245 U. S. 294
Weiss v. Weiner, 279 U. S. 333
279 U. S. 337
Burnet v. Harmel, 287 U. S. 103
287 U. S.
Section 131 does not say that the meaning of its words is to be
determined by foreign taxing statutes and decisions, and there is
nothing in its language to suggest that,
Page 302 U. S. 579
in allowing the credit for foreign tax payments, a shifting
standard was adopted by reference to foreign characterizations and
classifications of tax legislation. The phrase "income taxes paid,"
as used in our own revenue laws, has for most practical purposes a
well understood meaning to be derived from an examination of the
statutes which provide for the laying and collection of income
taxes. It is that meaning which must be attributed to it as used in
Hence, the Board's finding, supported as it is by much expert
testimony, that "the stockholder receiving the dividend is regarded
in the English income tax acts as having paid "by deduction or
otherwise" the tax "appropriate" to the dividend," is not
conclusive. At most it is but a factor to be considered in deciding
whether the stockholder pays the tax within the meaning of our own
statute. That must ultimately be determined by ascertaining from an
examination of the manner in which the British tax is laid and
collected what the stockholder has done in conformity to British
law and whether it is the substantial equivalent of payment of the
tax as those terms are used in our own statute.
We are here concerned only with the "standard" or normal tax.
The scheme of the British legislation is to impose on corporate
earnings only one standard tax at the source, and to avoid the
"double" taxation of the corporate income as it passes to the hands
of its stockholders, except as they are subject to surtax which the
corporation does not pay. The corporation pays the standard tax,
and against it the remedies for nonpayment run. It has been
intimated that the shareholder may be held to payment of the tax in
the event of the corporation's default, Hamilton v.
Commissioners of Inland Revenue,
16 British Tax Cases, 213,
236, but the contrary view finds more support in judicial opinion,
at 230; Dalgety & Co., Ltd. v. Commissioners
of Inland Revenue,
15 British Tax Cases, 216,
Page 302 U. S. 580
238; Neumann v. Commissioners of Inland Revenue,
British Tax Cases, 341, 345, 358, 362-363, 368, and was adopted by
the taxpayers' expert.
Although the corporation, in the United Kingdom as here, pays
the tax and is bound to pay it, the tax burden in point of
substance is passed on to the stockholders in the same way that it
is passed on under our own taxing acts where the tax on the
corporate income is charged as an expense before any part of the
resulting net profit is distributed to stockholders. See
Magill, Taxable Income 24 et seq.
Whether the tax is
deducted from gross profits before a dividend is declared, or
after, when the deduction is taken from the gross dividend, the net
amount received by the stockholder is the same. Under either
system, if no dividend is declared, no tax is paid by the
stockholder. [Footnote 5
] If a
dividend is declared, it must be paid, however the deduction is
made, from what is left after the corporation has paid taxes upon
its earnings. The differences in the two methods of deduction are
to be found only in the formal bookkeeping data which, in the
British system, are communicated to the stockholders not for the
purpose of laying or collecting the tax which the corporation has
already paid or must pay, but to aid the stockholders in computing
their surtax and in securing the benefit of any refund of the
The stockholders' surtax is computed upon the gross dividend,
the dividend which he actually receives plus the tax deducted.
] If the
stockholder's income is exempt or less than the minimum amount
subject to the tax, refund is made to him of the proportionate
share of the tax paid
Page 302 U. S. 581
by the corporation. [Footnote
] It is upon these features of the British system that the
taxpayers chiefly rely to support their argument that the
stockholder pays the tax. For these limited purposes, which do not
affect the assessment and payment of the tax, it is true that the
British acts treat the stockholder as though he were the taxpayer.
But, with respect to the surtax, the stockholder pays it and the
taxpayers here have received for its payment the credit which our
statute allows. Inclusion of the deducted amount in the base on
which surtax is calculated, together with the provisions for refund
of the tax to the stockholder who, in any event, bears its economic
burden, are logical recognitions of the British conception that the
standard tax paid by the corporation is passed on to the
Our revenue laws give no recognition to that conception.
Although the tax burden of the corporation is passed on to its
stockholders with substantially the same results to them as under
the British system, our statutes take no account of that fact in
establishing the rights and obligations of taxpayers. Until
recently, they have not laid a tax, except surtax, on dividends,
but they have never treated the stockholder for any purpose as
paying the tax collected from the corporation. Nor have they
treated as taxpayers those upon whom no legal duty to pay the tax
is laid. Measured by these standards, our statutes afford no scope
for saying that the stockholder of a British corporation pays the
tax which is laid upon and collected from the corporation, and no
basis for a decision that § 131 extends to such a stockholder a
credit for a tax paid by the corporation -- a privilege not granted
to stockholders in our own corporations. It can hardly be said that
a tax paid to the Crown by a British corporation subject to United
States income tax is not a tax paid
Page 302 U. S. 582
within the meaning of § 23(c)(2) of the 1928 Act, which allows a
deduction from gross income for taxes paid to a foreign country,
cf. Welch v. St. Helens Petroleum Co., Ltd.,
78 F.2d 631,
or that its stockholders could take credit under § 131 for their
share of the tax on the theory that they also had paid it.
The taxpayers urge that departmental rulings sustaining credits
or deductions by stockholders of British corporations, S.M. 3040,
IV-1 C.B.198; S.M. 5363, V-1 C.B. 89; I.T. 2401, VII-1 C.B. 126;
G.C.M. 3179, VII-1 C.B. 240, have taken on the force of law by
virtue of the reenactment of the deduction and credit provisions
carried into §§ 23 and 131 of the 1928 Act. Laying aside the fact
that departmental rulings not promulgated by the Secretary are of
little aid in interpreting a tax statute, Helvering v. New York
Trust Co., 292 U. S. 455
292 U. S.
-468, these rulings rest for their conclusions as to
the application of § 131 upon their interpretation of the nature
and effect of the British legislation. The presumption that
Congress, in reenacting a statute, can ascertain the course of
administrative interpretation and, knowing its own intent, will
correct the administrative ruling if mistaken, cannot apply to
rulings upon the intent of other legislative bodies. So far as the
rulings with which we are now concerned sought to state the force
and effect of British law, they can have no more binding effect on
courts than in the case of any determination of fact which calls
into operation the taxing statutes. So far as they have construed
our own statute as adopting the British characterization, they
plainly misinterpret an unambiguous provision. Where the law is
plain, the subsequent reenactment of a statute does not constitute
adoption of its administrative construction. Iselin v. United
States, 270 U. S. 245
Louisville & N. R. Co. v. United States, 282 U.
; Helvering v. New York Trust Co.,
Page 302 U. S. 583
What we have said is decisive of the second question, whether
any of the amounts not available for credit under § 131 may be
deducted from gross income for the purpose of arriving at taxable
net income. By § 23(c)(2) of the 1928 Act, the deductions of
"income . . . taxes imposed by the authority of any foreign
country" are limited to taxes paid or accrued. Since we have held
that the taxpayer has not paid or become subject to the foreign tax
here in question, the section, by its terms, is inapplicable.
No. 55 affirmed.
No. 505 reversed.
MR. JUSTICE McREYNOLDS, MR. JUSTICE SUTHERLAND, and MR. JUSTICE
BUTLER are of opinion that the applicable rule was correctly stated
by the lower court in No. 505, Elkins v. Commissioner,
F.2d 534, and by the Circuit Court of Appeals for the First Circuit
in United Shoe Machinery Corp. v. White,
89 F.2d 363, and
that the challenged judgment in No. 55 should be reversed, and that
in No. 505 affirmed.
* Together with No. 505, Helvering, Commissioner of Internal
Revenue v. Elkins,
on certiorari to the Circuit Court of
Appeals for the Third Circuit.
British Income Tax Act 1918, 8 and 9 Geo. V, c. 40, as amended
by § 38, Finance Act of 1927, 17 and 18 Geo. V, c. 10. General Rule
1 of the 1918 Act provides, "Every body of persons shall be
chargeable to tax in like manner as any person is chargeable under
the provisions of this Act." By § 237 of the 1918 Act, "body of
persons" includes "any company . . . whether corporate or not
Section 33, Finance Act of 1924, 14 and 15 Geo. V, c. 21.
The Act of 1918 prescribes general rules for the assessment and
collection of taxes "on profits from property, trade or business."
By General Rule 20, it is provided that the tax is to be paid on
the "full amount" of the profit
"before any dividend thereof is made in respect of any share . .
. and the body of persons paying such dividend shall be entitled to
deduct the tax appropriate thereto."
The tax "appropriate" to a dividend payment is the standard rate
of tax for the year in which the dividend is declared, regardless
of the rate at which the amount distributed was in fact taxed when
it was received by the company. Hamilton v. Commissioners of
16 British Tax Cases, 213, 229, 234;
Neumann v. Commissioners of Inland Revenue,
18 British Tax
Cases, 332, 359, 361.
General Rule 20, Income Tax of 1918.
Cf. Dalgety & Co., Ltd. v. Commissioners of Inland
15 British Tax Cases 216, 238; Neumann v.
Commissioners of Inland Revenue,
18 British Tax Cases 341,
345, 358, 362-363, 368.
Hamilton v. Commissioners of Inland Revenue,
Tax Cases 213, 229, 234; Neumann v. Commissioners of Inland
18 British Tax Cases 332, 345, 358-360, 361.
Income Tax Act of 1918, §§ 29(1), 55(1), 211(1) as amended by
Finance Act 1920, § 27(1).