Thurgood Marshall

“ 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. ”

“ 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 which domestic tax concepts recognize little or no income and yet a subsidiary pays substantial foreign tax. ”

“ 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. ”