United States v. Goodyear Tire & Rubber Company and Affiliates

Goodyear Tire & Rubber Company (Goodyear) (defendant), a domestic corporation, had a wholly owned subsidiary, Goodyear Tyre and Rubber Company (Great Britain) Limited (Goodyear G. B.). Goodyear paid income taxes for 1970 and 1971; during the same years, Goodyear G. B. filed income tax returns and paid taxes to Ireland and the United Kingdom. Goodyear G. B. also made distributions of dividends to Goodyear, which was its sole shareholder. Goodyear reported the dividends and then claimed credit for the relevant portion of the foreign taxes paid by Goodyear G. B. The credit provided under 26 U.S.C. § 902 allows the parent company of a foreign subsidiary to avoid double taxation by taking a credit for foreign taxes paid by the subsidiary. This was complicated by the following facts. In 1973, Goodyear G. B. claimed a net loss on its United Kingdom tax return, which Goodyear G. B. could then carry back to set aside portions of its 1970 and 1971 income. Based on those carried-back figures, the United Kingdom recalculated Goodyear G. B.’s liability and issued refunds for a large portion of the 1970 and 1971 foreign tax payments. This then caused the Commissioner of Internal Revenue, acting on behalf of the United States (plaintiff), to recalculate the tax credit claimed by Goodyear based on the foreign taxes paid by Goodyear G. B. Essentially, the government recalculated the tax paid but refused to recalculate the accumulated profits of Goodyear G. B., relying on American taxation principles to calculate accumulated profits. In contrast, Goodyear urged using British taxation principles to calculate accumulated profits, which would have taken the recalculations from the carried-back losses into consideration for the taxes paid and the accumulated profits from those years. Ultimately, Goodyear paid the claimed tax deficiencies but filed suit for a refund. The court of claims ruled for the government, but Goodyear appealed.