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Reporter's Statement of the Case were continuous and involved sundry transactions for gain and profit; and where, although it did not maintain an office or place of business in the United States but all of its transactions involving purchases and sales of securities, collections and deposits, and other monetary transactions, were handled through domestic bankers and brokers, it is held that said foreign corporation was "engaged in business" in the United States within the meaning of section 38 of the Revenue Act

of 1909. Same; distinction between capital stock taw and income tax.-A

capital stock tax is a tax upon the privilege of doing business in a corporate capacity and the tax in question here was based on income derived from operating as a corporation whereas an income tax is based on the receipt of income however

derived. Same; "engaged in business.—The phrase, “engaged in business," is

a most comprehensive term and embraces everything which a

corporation may be engaged in for profit. Same.-A single activity would not constitute "engaging in business." Same; corporation activities.—When a corporation is organized for

the purpose of profit-making activities and engages in such

activities, it is subject to the capital stock tax. Same; domestic and foreign corporations.-Under the statute there

is no difference between a domestic and a foreign corporation which would give the foreign corporation a distinct advantage because it did not maintain an office or agent in this country.

The Reporter's statement of the case : Mr. Raymond T. Heilpern for the plaintiff. Messrs. Maxwell C. Katz and Otto C. Sommerich and Katz & Sommerich were on the brief.

Mr. S. E. Blackman, with whom was Mr. Assistant Attorney General Samuel O. Clark, Jr., for the defendant. Messrs. Robert N. Anderson and Fred K. Dyar were on the brief.

The court made special findings of fact as follows.

1. The plaintiff, Berliner Handels-Gesellschaft, is a banking firm organized under the laws of Germany July 2, 1856, and is an independent legal entity.

There are two classes of persons in the firm, to wit: shareholders and managers. The shareholders' contributions of capital are evidenced by certificates of stock and the liability

Reporter's Statement of the Case of the shareholders is limited to the stipulated value of the shares. The managers, who, in a stock corporation, would be the managing committee, are liable with their entire proporty for the liabilities of the company. This liability arises only in the event of the company's bankruptcy. It is secondary to that of the company. During all times relevant hereto, the managers were determined by an administrative board. The administrative board occupied a relationship to the managers of the firm analagous to that between the board of directors of an American corporation and its officers.

The firm was authorized to do a general banking, commercial, and industrial business and to establish branches, subsidiaries, and agencies.

2. On April 24, June 6, and August 24, 1931, in accordance with demands made upon the plaintiff by the Commissioner of Internal Revenue, the plaintiff filed with him at Washington, D. C., under protest, various statements concerning its income for the calendar years 1909, 1910, 1911, and 1912, and for the first two months of 1913.

3. March 8, 1932, the Commissioner addressed a 30-day letter to the plaintiff in which it was notified that its corporation excise tax liability for the taxable period comprising the years 1909, 1910, 1911, and 1912 and the first two months of 1913 disclosed that taxes and penalties were due from it for such period in the following amounts:

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4. May 1, 1932, the Commissioner, pursuant to the provisions of Section 3176 of the Revised Statutes, prepared tax returns for the plaintiff which show the following with respect to its entire net income, over and above $5,000, received by it from business transacted and capital invested within the United States and its territories during the taxable period.

219339—40-vol. 90

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5. For the taxable period plaintiff was assessed by the Commissioner in the following several amounts, by year, in August 1932, and the taxes, penalties, and interest were collected from the taxpayer in their entirety August 20, 1932, by credit against an overassessment for 1917:

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6. February 2, 1933, the taxpayer filed, with the appropriate collector of internal revenue, claims for refund for the taxable period in question, applying to the respective years in amounts as follows: Year:

Amount claimed 1909

$3, 104. 96

3,632. 80 1911.

7,590. 44 3, 289. 28 1, 331.01

1910---

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1

1912

1913---------------------

Total.

-- 18, 948. 49 The basis claimed by the taxpayer for refund was stated in the several claims as follows:

The Berliner Handels-Gesellschaft, during the year 1909, was a corporation existing by virtue of the laws of the Empire of Germany (now the Republic of Germany). ^ During the year 1909, the said taxpayer was

Reporter's Statement of the Case not doing business in the United States of America as contemplated by Section 38 of the Act of 1909.

The taxpayer herein, during the year 1909, maintained no office in this country for the transaction of its business, nor did it have any agent acting for it in the United States of America. Its income from the United. States was obtained as follows:

a. The taxpayer had cash accounts with American banks which served the purpose of effecting payments, in this country for the account of its clients.

b. The taxpayer did an arbitrage on a joint account with American banks in those securities which were: dealt in in Berlin as well as New York.

c. The taxpayer bought and sold for investment; stocks and bonds for its own account and for the account of its customers.

d. The purchases of the taxpayer for investment for its own account exceeded to a great extent the sale of securities made by the taxpayer.

e. The income received from the investment made by the taxpayer was deposited to its account in American banks.

The above, in effect, represents the nature of the business of the taxpayer during the year 1909 as effected in the United States of America. Therefore, the taxpayer herein was not engaged in or doing business in the United States of America, so as to subject it to the tax

imposed by Section 38 of the Act of 1909. 7. By letters dated February 28, 1933, the Commissioner notified the taxpayer that its claims for refund for the taxable period, amounting to $18,948.49, were rejected, on the ground that “the taxpayer bought, sold, and held in New York, large amounts of securities for account of itself and others, deposited large sums with New York bankers and brokers for the purpose of such trading, transferred money and securities from place to place as market conditions were most favorable, and that as the result of all these transactions the taxpayer made substantial profits and that in addition to the above, it received interest from bonds and from credit balances and that the taxpayer was a corporation organized under the laws of Germany."

No part of the amount thus claimed and rejected has been refunded.

Reporter's Statement of the Case 8. During the taxable period involved herein the plaintiff received income from business transacted and capital invested within the United States in the manner described in this and succeeding findings.

Plaintiff maintained accounts with stock-brokerage houses in the city of New York, certain of which also did a private banking business. To or through these houses plaintiff made loans and from or through them borrowed money. The interest paid or received thereon was as follows:

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The interest paid exceeded that received by $153,315.27. The major borrowings were from Hallgarten & Co., Kuhn, Loeb & Co., and National Bank of Commerce, for individual loans of $500,000 or $1,000,000, for various terms, at interest ranging from 4% to 434%.

The total major borrowings, outstanding during the periods indicated, varied in the following amounts: September 18, 1911, to October 17, 1911.

$1,000,000 October 17, 1911, to October 24, 1911.

1,500,000 October 24, 1911, to October 30, 1911...

2,000,000 October 30, 1911, to January 18, 1912------

3,000,000 January 18, 1912, to January 31, 1912--

2,000,000 January 31, 1912, to March 15, 1912..

1,500,000 March 15, 1912, to March 18, 1912..

3,000,000 March 18, 1912, to April 22, 1912_

3,500,000 April 22, 1912, to June 17, 1912-----

3,000,000 June 17, 1912, to September 17, 1912_

2,500,000 September 17, 1912, to October 28, 1912.

2,000,000 October 28, 1912, to November 15, 1912---

1,000,000 November 15, 1912, to November 19, 1912_

500,000

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