In 1970 and 1971, Goodyear Tyre and Rubber Company (Great
Britain) Limited (Goodyear G.B.), a wholly owned subsidiary of
Goodyear Tire and Rubber Company (Goodyear), a domestic
corporation, filed income tax returns in, and paid taxes to, the
United Kingdom and the Republic of Ireland. It also distributed
dividends to Goodyear, its sole shareholder, which Goodyear
reported on its federal tax return. Thereafter Goodyear sought an
indirect credit for a portion of the foreign taxes paid by Goodyear
G.B. as permitted by § 902 of the Internal Revenue Code (Code),
which limits a domestic parent corporation's credit to the amount
of tax paid by the subsidiary attributable to the dividend issued.
The credit is calculated by multiplying the total foreign tax paid
by that portion of the subsidiary's after-tax "accumulated profits"
that is actually issued to the domestic parent in the form of a
taxable dividend. After Goodyear G.B. carried back a net loss
reported on its 1973 British tax return to offset portions of its
1970 and 1971 income, British taxing authorities recalculated its
1970 and 1971 income and tax liability, and the company received a
refund for those years. Pursuant to § 905(c) of the Code -- which
permits redetermination of the foreign tax credit whenever any tax
paid is refunded -- the Commissioner of Internal Revenue
recalculated the indirect tax credit available to Goodyear for 1970
and 1971 by lowering the foreign taxes paid to reflect the refund.
However, he refused to lower accumulated profits for those years to
reflect the British tax authorities' redetermination because,
applying United States tax principles, Goodyear G.B.'s loss would
not have been allowable had the company been a domestic corporation
filing a federal tax return. Thus, the Commissioner assessed, and
Goodyear paid, tax deficiencies for 1970 and 1971. Goodyear
subsequently sought a refund in the Claims Court, which rejected
Goodyear's claim that foreign tax law principles govern the
calculation of "accumulated profits" in § 902's tax credit, finding
instead that the purposes underlying § 902 favored calculation of
"accumulated profits" in accordance with United States tax
concepts. The Court of Appeals reversed, holding that the "plain
meaning" of § 902 required that "accumulated profits" be determined
under foreign law. It also held that the congressional
Page 493 U. S. 133
purpose underlying § 902 to eliminate international double
taxation would be defeated if a foreign subsidiary's taxes, but not
its "accumulated profits," were calculated under foreign law.
Held: "Accumulated profits," as that term appears in §
902's indirect tax credit, are to be calculated in accordance with
domestic tax principles.
493 U. S.
138-145.
(a) Section 902's text does not resolve how "accumulated
profits" are to be calculated, since it relates such profits both
to the foreign tax paid by the subsidiary, calculated in accordance
with foreign law, and to the dividend issued by the subsidiary,
calculated in accordance with domestic law. Pp.
493 U. S.
138-139.
(b) No definitional approach to "accumulated profits" uniformly
and unqualifiedly satisfies the indirect credit's dual
congressional purposes, as clearly demonstrated by the credit's
history, of protecting a domestic parent from double taxation of
its income and treating foreign branches and foreign subsidiaries
alike in terms of the tax credits they generate for their domestic
companies. Goodyear correctly claims that calculating such profits
according to domestic tax principles can result in situations in
which § 902's statutory goal of avoiding double taxation will be
disserved. However, as the Government contends, defining the
profits in terms of foreign tax principles can unfairly advantage
domestic companies that operate through foreign subsidiaries over
those that operate through unincorporated branches. Pp.
493 U. S.
139-140.
(c) The Government's interpretation of "accumulated profits" is
more faithful to congressional intent. The risk of double taxation
is less substantial than the risk of unequal treatment. Goodyear
offers no basis for its suggestion that double taxation -- which
can result only when a dividend is sourced to a year in which
domestic tax concepts recognize little or no income and yet a
subsidiary pays substantial foreign tax -- commonly occurs. On the
other hand, Goodyear's approach leads to unequal tax treatment of
subsidiaries and branches whenever the foreign taxing authority
calculates income more or less generously than the United States, a
result that is difficult to square with the express congressional
purpose of ensuring tax parity between corporations that operate
through foreign subsidiaries and those that operate through foreign
branches. The Government's approach is also supported by
administrative interpretations of § 902 and by the statutory canon
that tax provisions should generally be read to incorporate
domestic tax concepts absent a clear congressional expression that
foreign concepts control,
Biddle v. Commissioner,
302 U. S. 573,
578. Pp.
493 U. S.
143-145.
856 F.2d 170, (CA Fed 1988), reversed and remanded.
MARSHALL, J., delivered the opinion for a unanimous Court.
Page 493 U. S. 134
Justice MARSHALL delivered the opinion of the Court.
In this case, we must decide whether "accumulated profits" in
the indirect tax credit provision of the Internal Revenue Code of
1954, 26 U.S.C. § 902 (1970 ed.), are to be measured in accordance
with United States or foreign tax principles. We conclude that
"accumulated profits" are to be measured in accordance with United
States principles.
I
Goodyear Tyre and Rubber Company (Great Britain) Limited
(Goodyear G.B.) is a wholly owned subsidiary of Goodyear Tire and
Rubber Company, a domestic corporation (Goodyear). Goodyear brought
this suit seeking a refund of federal income taxes collected for
the years 1970 and 1971. During those years, Goodyear G.B. filed
income tax returns in, and paid taxes to, the United Kingdom and
the Republic of Ireland. Goodyear G.B. also distributed dividends
to Goodyear, its sole shareholder. Goodyear reported these
dividends on its federal tax return, as required by 26 U.S.C. §§
301, 316 (1970 ed.). Goodyear thereafter sought credit for a
portion of the foreign taxes paid by Goodyear G.B. in the amount
specified in § 902. [
Footnote
1]
Page 493 U. S. 135
Section 902 provides a parent of a foreign subsidiary with an
"indirect" or "deemed paid" credit on its domestic income tax
return to reflect foreign taxes paid by its subsidiary. The credit
protects domestic corporations that operate through foreign
subsidiaries from double taxation of the same income: taxation
first by the foreign jurisdiction, when the income is earned by the
subsidiary, and second by the United States, when the income is
received as a dividend by the parent. In some circumstances, a
foreign subsidiary may choose to distribute only a portion of its
available profit as a dividend to its domestic parent. For that
reason, a domestic parent cannot automatically claim credit for all
foreign taxes paid by its subsidiary: § 902 limits a domestic
parent's credit to the amount of tax paid by the subsidiary
attributable to the dividend issued. The foreign tax deemed paid by
the domestic parent is calculated by multiplying the total foreign
tax paid (T) by that portion of the subsidiary's after-tax
accumulated profits (AP-T) that is actually issued to the domestic
parent in the form of a taxable dividend (D). [
Footnote 2]
Page 493 U. S. 136
In 1973, Goodyear G.B. reported a net loss on its British tax
return and carried back that loss to offset substantial portions of
its 1970 and 1971 income. Based on the 1973 carried-back losses,
British taxing authorities recalculated Goodyear G.B.'s income and
tax liability for the years 1970 and 1971. Goodyear G.B. thereafter
received a refund of a substantial portion of its 1970 and 1971
foreign tax payments. In response to the refunds, and pursuant to §
905(c) of the Code which permits redetermination of the foreign tax
credit whenever "any tax paid is refunded in whole or in part," the
Commissioner of Internal Revenue recalculated the indirect tax
credit available to Goodyear for the tax years 1970 and 1971. The
Commissioner lowered the foreign taxes paid (T) to reflect the
refund. He refused, however, to lower accumulated profits (AP) for
those years to reflect British tax authorities' redetermination of
Goodyear G.B.'s income. The deductions that created, for British
tax purposes, the 1973 loss would not have been allowable in the
computation of United States income tax if Goodyear G.B. had been a
United States corporation filing a United States return.
See App. 19-29 (Stipulation of Facts). In the
Commissioner's view, accumulated profits are to be calculated in
accordance with United States tax principles; accordingly, the
Commissioner regarded Goodyear G.B.'s 1970 and 1971 accumulated
profits as unaffected by the deductions allowed under British
law.
In view of the reduced amount of Goodyear's tax deemed paid, the
Commissioner assessed substantial tax deficiencies for the tax
years 1970 and 1971. Goodyear paid the deficiencies and, following
the IRS's denial of its administrative refund claim, brought this
action in the United States Claims Court, averring that foreign tax
law principles govern the calculation of "accumulated profits" in §
902's tax credit. Calculating "accumulated profits" in accordance
with British tax law principles, Goodyear maintained that Goodyear
G.B.'s after-tax accumulated profits for 1970 and 1971 were
Page 493 U. S. 137
insufficient to cover the dividends paid in those years. In such
a circumstance, § 902 requires that, for the purpose of computing
the indirect credit, the excess of the dividend be deemed paid out
of the after-tax accumulated profits of the preceding year. If in
that year the remaining portion of the dividend exceeds the
after-tax accumulated profits, the remainder of the dividend is
allocated or "sourced" to the next most recent year, until the
dividend is exhausted. [
Footnote
3] Thus, Goodyear argued that the dividends it received from
Goodyear G.B. in 1970 and 1971 should have been sourced to prior
tax years, 1968 and 1969, until Goodyear G.B.'s after-tax
accumulated profits covered the dividends. Through this sourcing
mechanism, Goodyear would, in computing its domestic tax liability
for the dividends issued by Goodyear G.B., receive credit for a
portion of the foreign taxes paid by Goodyear G.B. in 1968 and
1969. Because Goodyear G.B. paid substantial foreign taxes in those
tax years, allocation of the dividend to those years would yield a
tax deemed paid by Goodyear in excess of �1,000,000, over four
times greater than the tax the Commissioner deemed paid. If the
term "accumulated profits" is defined in accordance with domestic
tax principles, as the Commissioner advocated, the dividends issued
in 1970 and 1971 are fully exhausted by the accumulated profits of
those years, resulting in a tax deemed paid of �247,124.
The Claims Court rejected Goodyear's claim. 14 Cl.Ct. 23 (1987).
Viewing the statutory definition of "accumulated profits" in §
902(c)(1)(A) as inconclusive, 14 Cl.Ct., at 28-29, the court turned
to the purposes underlying § 902, and found that they favored
calculation of "accumulated profits" in accordance with United
States tax concepts,
id. at 29-31. The Court of Appeals
for the Federal Circuit reversed. 856 F.2d 170 (1988). The court
held that the "plain meaning" of § 902 "requires [accumulated
profits] to be determined under
Page 493 U. S. 138
foreign law." 856 F.2d at 172. The court also held that the
fundamental congressional purpose underlying § 902,
"
elimination of international double taxation,'" ibid.
(quoting H.H. Robertson Co. v. Commissioner, 59 T.C. 53,
74 (1972), aff'd, 500 F.2d 1399 (CA3 1974)), would be
defeated if the taxes paid by a foreign subsidiary, but not its
accumulated profits, were calculated in terms of foreign law. 856
F.2d at 172.
The Court of Appeals' decision has important consequences for
the calculation of the indirect tax credit of domestic parents that
have received dividends from their subsidiaries abroad. To clarify
the operation of the § 902 credit in the tax years to which it
applies, [
Footnote 4] we
granted certiorari, 490 U.S. 1045 (1989), and now reverse.
II
Our starting point, as in all cases involving statutory
interpretation, "must be the language employed by Congress."
Reiter v. Sonotone Corp., 442 U.
S. 330,
442 U. S. 337
(1979). We find that the text of § 902 does not resolve whether
"accumulated profits" are to be calculated in accordance with
foreign or domestic tax concepts.
It is true, as the Court of Appeals emphasized, that §§
902(a)(1) and 902(c)(1)(A) link "accumulated profits" to the
foreign tax imposed on the subsidiary. The link is forged by
describing the foreign tax as that tax imposed "on or with respect
to" accumulated profits. The provisions also, however,
Page 493 U. S. 139
link "accumulated profits" to "dividends" by describing
"accumulated profits" as the pool from which the "dividends" are
issued. Section 316(a), in turn, makes clear that domestic
principles control whether a payment is a "dividend" subject to
domestic tax. On the basis of this link, a leading treatise has
concluded that
"[a]ccumulated profits of the foreign corporation . . . are, in
general, equated with earnings and profits of the foreign
corporation, and are determined in accordance with domestic law
principles."
B. Bittker & J. Eustice, Federal Income Taxation of
Corporations and Shareholders � 17.11, p. 17-44 (5th ed. 1987)
("Adoption of these principles has the virtue of correlating the
denominator of the § 902 computation with the definition of
dividends (the numerator), thus avoiding the possible distortions
that could arise if different definitional approaches were used for
the numerator and denominator of the § 902 fraction"). Because §
902 relates "accumulated profits" both to the foreign tax paid by
the subsidiary, calculated in accordance with foreign law, and to
the dividend issued by the subsidiary, calculated in accordance
with domestic law, we are unpersuaded that the statutory language
is dispositive. We must therefore look beyond the statute's
language to the legislative history, purposes, and operation of the
indirect tax credit.
III
A
The history of the indirect credit clearly demonstrates that the
credit was intended to protect a domestic parent from double
taxation of its income. Congress first established the indirect tax
credit in § 240(c) of the Revenue Act of 1918, 40 Stat. 1082,
permitting a domestic parent to receive a credit for a portion of
the foreign taxes paid by its subsidiary during the year in which
the subsidiary issued a dividend to the parent. This Court
subsequently described the purpose of § 240(c) as protection
against double taxation.
American
Chicle
Page 493 U. S. 140
Co. v. United States, 316 U. S. 450,
316 U. S. 452
(1942);
see also Bittker & Eustice, at � 17.11, p.
17-40.
The legislative history of the indirect credit also clearly
reflects an intent to equalize treatment between domestic
corporations that operate through foreign subsidiaries and those
that operate through unincorporated foreign branches. In § 238(e)
of the Revenue Act of 1921, 42 Stat. 259, Congress amended § 240(c)
to permit a domestic corporation to claim credit for taxes its
subsidiary paid in years other than those in which the dividend was
issued. Prior to the amendment, a domestic corporation could not
receive credit for foreign taxes paid on distributed income if its
subsidiary issued the dividend out of income earned in prior years,
see 316 U.S. at
316 U. S. 453,
because § 240(c) limited the credit to taxes paid by the subsidiary
"during the taxable year" in which the dividend was issued. The
amendment corrected this deficiency by relating the credit to the
accumulated profits out of which the dividends were paid.
In defending the amended version of the indirect credit, one
sponsor described the purpose of the credit as securing, for
domestic corporations that receive income in the form of dividends
from foreign subsidiaries, the same sort of deduction available to
domestic corporations that receive income from foreign branches. 61
Cong. Rec. 7184 (1921). [
Footnote
5] This goal of equalized treatment is reflected as well in
testimony regarding the amendment before the Senate Committee on
Finance, in which a spokesperson for the Department of the Treasury
described the proposal as intended "to give this American
corporation about the same credit as if conducting
Page 493 U. S. 141
a branch." Hearings on H.R. 8245 before the Senate Committee on
Finance, 67th Cong., 1st Sess., pt. 2, p. 389 (1921). More
recently, the Senate Report on the 1962 amendments to the indirect
credit confirms Congress' intent to treat foreign branches and
foreign subsidiaries alike in terms of the tax credits they
generate for their domestic companies.
See S.Rep. No.
1881, 87th Cong., 2d Sess., 66-67 (1962), U.S.Code Cong. &
Admin.News 1962, p. 3297. [
Footnote
6]
B
Given these purposes, we now turn to the operation of the
indirect tax credit. Goodyear contends that the failure to
calculate accumulated profits in terms of foreign law subjects
domestic corporations that receive dividends from their foreign
subsidiaries to double taxation. This undesirable result occurs, in
Goodyear's view, because calculation of accumulated profits in
accordance with domestic principles may disconnect the relationship
in § 902's formula between accumulated profits and the foreign tax
paid by the subsidiary. A subsidiary incurs foreign tax liability
in proportion to its foreign defined-income. To recover foreign
taxes paid by its subsidiary, a domestic parent's dividend must be
allocated or
Page 493 U. S. 142
sourced to years in which its subsidiary paid foreign tax. If,
however, accumulated profits are defined in domestic terms, the
dividends of a domestic parent may be allocated to years in which
the subsidiary paid little or no tax. In such a scenario, the
parent may not be credited with foreign taxes paid by its
subsidiary. To avoid this mismatching of accumulated profits and
foreign tax, Goodyear contends that accumulated profits should be
determined in accordance with the same principles that govern the
imposition of the tax: those found in foreign law.
The Government contests Goodyear's characterization of this case
as one of "double taxation." In the Government's view, the
dividends received by Goodyear should not be allocated to prior
years because to do so would permit Goodyear to avoid taxation
altogether on domestically defined income that its subsidiary
earned in 1970 and 1971. Under domestic rules, Goodyear G.B. earned
sufficient income in 1970 and 1971 to cover the dividends it issued
to Goodyear in those years. That British taxing authorities
recognized little income in those years should not, in the
Government's view, prevent the United States from recognizing the
substantial income attributable to those years under domestic
rules. According to the Government, the foreign tax paid in 1968
and 1969 by Goodyear G.B. -- the years to which Goodyear seeks to
source its dividends -- relates to income that Goodyear G.B. chose
not to distribute during those years as dividends to Goodyear. To
credit Goodyear with taxes paid on undistributed income, the
Government concludes, would be inequitable, because it would
provide domestic parents that operate through foreign subsidiaries
favorable treatment vis-a-vis domestic corporations that use
foreign branches.
Goodyear attempts to avoid the force of the Government's
analysis by exploring hypothetical situations in which the
calculation of accumulated profits in accordance with domestic
rules presents a more plausible claim of double taxation than does
this case. For example, if a subsidiary earns an equal
Page 493 U. S. 143
amount of income under foreign and domestic rules, but those
rules regard the income as being earned in different years, the
domestic parent would be credited with a lower portion of the tax
paid by the subsidiary if domestic timing rules govern. This result
appears anomalous, because the same credit should be available
where foreign and domestic tax principles recognize equal amounts
of income and the amount of tax paid remains constant. The effect
of the divergence in foreign and domestic tax principles is
particularly clear when a subsidiary pays a substantial foreign tax
in a given year and the amount of income recognized under domestic
rules in that year is zero. In such a circumstance, none of the tax
paid by the subsidiary can be credited to the parent, because a
dividend cannot be sourced to a year in which there are no
accumulated profits.
Goodyear's hypotheticals persuade us that, if accumulated
profits are calculated according to domestic tax principles,
situations can arise in which § 902's statutory goal of avoiding
double taxation will be disserved. Equally persuasive, however, is
the Government's claim that defining accumulated profits in terms
of foreign tax principles can unfairly advantage domestic parents
that operate through foreign subsidiaries over companies operating
through unincorporated branches. Thus, no definitional approach to
"accumulated profits" uniformly and unqualifiedly satisfies the
dual purposes underlying the indirect credit.
C
We nonetheless believe that the Government's interpretation of
"accumulated profits" is more faithful to congressional intent. Our
view is informed first and most significantly by our assessment
that the risk of double taxation outlined by Goodyear is less
substantial than the risk of unequal treatment cited by the
Government. Defining "accumulated profits" in accordance with
domestic tax concepts results in double taxation only when a
dividend is sourced to a year in
Page 493 U. S. 144
which domestic tax concepts recognize little or no income, and
yet a subsidiary pays substantial foreign tax. Goodyear offers no
basis for the suggestion that such mismatching commonly occurs.
Goodyear's approach, on the other hand, leads to unequal tax
treatment of subsidiaries and branches whenever the foreign taxing
authority calculates income more or less generously than the United
States. A domestic corporation must pay tax on all income of a
foreign branch that is recognized under domestic law. Under
Goodyear's interpretation, a domestic corporation may in some cases
receive credit for taxes paid on income that, under domestic rules,
the parent never received. This result is difficult to square with
the express congressional purpose of ensuring tax parity between
domestic corporations that operate through foreign subsidiaries and
those that operate through foreign branches.
The Government's approach is also supported by administrative
interpretations of § 902. In defining the credits available against
foreign tax under the predecessor to § 902, the Commissioner stated
that
"[i]t is important in establishing the amount of the accumulated
profits that it be based as a fundamental principle upon all income
of the foreign corporation available for distribution to its
shareholders
whether such profits be taxable by the foreign
country or not."
I.T. 2676, XII-l Cum.Bull. 48, 50 (1933) (emphasis added). The
Commissioner's approach requires a domestic assessment of income
for the purposes of calculating accumulated profits. The
Commissioner's position is reflected as well in a formal regulation
promulgated by the Treasury in 1965, Treas.Reg. § 1.902-3(c)(1), 26
CFR § 1.902-3(c)(1) (1972), which defines "accumulated profits"
under § 902(a)(1) as
"the sum of [t]he earnings and profits of [the foreign
subsidiary] for such year, and [t]he foreign income taxes imposed
on or with respect to the gains, profits, and income to which such
earnings and profits are attributable."
Defining a subsidiary's "accumulated profits" as its "earnings
and profits" reflects an intent
Page 493 U. S. 145
to calculate accumulated profits according to domestic
principles, because "earnings and profits" in this context is a
domestic tax concept.
Lastly, we find support for the Government's position in the
statutory canon adopted in
Biddle v. Commissioner,
302 U. S. 573,
302 U. S. 578
(1938), that tax provisions should generally be read to incorporate
domestic tax concepts absent a clear congressional expression that
foreign concepts control. This canon has particularly strong
application here, where a contrary interpretation would leave an
important statutory goal regarding equal tax treatment of foreign
subsidiaries and foreign branches to the varying tax policies of
foreign tax authorities.
IV
"Accumulated profits," as that term appears in § 902's indirect
tax credit, should be calculated in accordance with domestic tax
principles. The judgment of the Court of Appeals is therefore
reversed, and the case is remanded for further proceedings
consistent with this opinion.
It is so ordered.
[
Footnote 1]
Section 902(a) provides:
"For purposes of this subpart, a domestic corporation which owns
at least 10 percent of the voting stock of a foreign corporation
from which it receives dividends in any taxable year shall -- "
"(1) to the extent such dividends are paid by such foreign
corporation out of accumulated profits (as defined in subsection
(c)(1)(A)) of a year for which such foreign corporation is not a
less developed country corporation, be deemed to have paid the same
proportion of any income, war profits, or excess profits taxes paid
or deemed to be paid by such foreign corporation to any foreign
country or to any possession of the United States on or with
respect to such accumulated profits, which the amount of such
dividends (determined without regard to section 78) bears to the
amount of such accumulated profits in excess of such income, war
profits, and excess profits taxes (other than those deemed paid). .
. ."
[
Footnote 2]
The formula for calculating the § 902 credit is as follows:
bwm:
( Dividends (D) )
( ---------------------------)
Credit = Foreign Taxes Paid (T) x ( Accumulated Profits (AP)
)
( minus Foreign Taxes (T) )
ewm:
[
Footnote 3]
The operation of this sourcing principle is described in
General Foods Corp. v. Commissioner, 4 T.C. 209, 215
(1944).
[
Footnote 4]
Calculation of the indirect credit for tax years beginning after
1986 is governed by the amended version of § 902 established by the
Tax Reform Act of 1986, 100 Stat. 2528, 26 U.S.C. § 902 (1982 ed.,
Supp. IV). The amended version substantially overhauls the method
of calculating the credit and removes the controversy regarding the
definition of "accumulated profits." The current version of §
902(c)(1) replaces "accumulated profits" with "undistributed
earnings," which are defined as the "earnings and profits of the
foreign corporation (computed in accordance with sections 964 and
986)." Section 964(a), in turn, provides that
"the earnings and profits of any foreign corporation . . . shall
be determined according to rules substantially similar to those
applicable to domestic corporations."
26 U.S.C. § 964(a) (1982 ed.).
[
Footnote 5]
Senator Smoot stated:
"[A] foreign subsidiary is much like a foreign branch of an
American corporation. If the American corporation owned a foreign
branch, it would include the earnings or profits of such branch in
its total income, but it would also be entitled to deduct from the
tax based upon such income any income or profits taxes paid to
foreign countries by the branch in question. Without special
legislation, however, no credit can be obtained where the branch is
incorporated under foreign laws."
[
Footnote 6]
The 1962 amendment addresses a tax preference that results if a
domestic parent is credited with foreign taxes paid on subsidiary
income that is used to satisfy the subsidiary's foreign tax
obligations. In such a circumstance, the parent receives credit for
taxes paid on undistributed income. This Court sought to eliminate
this tax advantage in
American Chicle Co. v. United
States, 316 U. S. 450,
316 U. S. 452
(1942), by including in the § 902 credit only those taxes paid on a
subsidiary's after-tax income. The 1962 amendment addressed the
problem differently, permitting a domestic parent to include all
foreign taxes paid in its § 902 calculation, but also requiring the
parent to treat such taxes as a deemed dividend from its
subsidiary. The amendment thus requires domestic parents to "gross
up" the dividend income they receive by the amount of the foreign
taxes attributable to such income.
See S.Rep. No. 1881,
87th Cong., 2d Sess., 69 (1962). The Senate Report, describing the
purpose of the amendment as removing an "unjustified tax advantage"
for domestic parents, illustrates how foreign subsidiaries and
foreign branches are treated unequally absent the "grossing up"
requirement, even under the
American Chicle rule.
Id. at 66-67.