Foreign Steamship Companies. Foreign steamship companies engaged in the business of transporting passengers, goods and merchandise between ports in this country and foreign ports and maintaining passenger and freight agencies in this country, are doing business here and subject to the income tax. There seems to be no question of constitutionality involved in such tax being a tax on exports.6 A firm in Great Britain chartered its vessels (tramp steamers) to residents of the United States who operated them from ports in this country. It was held by the Treasury Department that the net income accruing to the foreign firm as a result of this transaction was income derived from capital invested and business transacted in the United States, on the ground that steamers chartered to parties in the United States occupied the same position for the purpose of the income tax law as do branches of foreign corporations located in the United States." Foreign steamship companies

of same, renting and paying rent for a room for doing the business, depositing and collecting the checks received in payment and paying the expense of the business therefrom, all done in the State of New York in the United States. It was not necessary that the contracts should have been made wholly in the United States, or that their execution or performance should have been wholly in the United States.'' Under the 1909 Law it was held that where the foreign corporation owned timberlands in this country and operated a match factory but sold its lands and plant, payments to be made in instalments, the foreign company to retain the title until paid in full, it was not doing business, although retaining an attorney in the state to look after its interest and an agent for service of process as required by state statute. (Bryant and May, Limited, v. Scott, 226 Fed. 875.) Under the same state of facts the corporation would be taxable under the present law.

6 28 Op. Atty. Gen. 211; Aguirre v. Maxwell, 3 Blatch. 140. 7 Letter from Treasury Department dated December 8, 1916.

having no office in the United States, whose vessels only occasionally touch at ports in the United States, were not regarded as doing business in this country within the meaning of the 1909 Law, but the point has not been ruled upon under the 1916 Law.

Foreign Governments. Under the 1916 Law, prior to the amendment of October 3, 1917, it was held by the Treasury Department that the income accruing to a foreign government from sources within the United States arising from interest on bonds or dividends on stock of domestic corporations was subject to tax. The law now provides that nothing in the 1913 Law or the 1916 Law shall be construed as taxing the income of foreign governments received from investments in the United States in stocks, bonds, or other domestic securities, owned by such foreign governments, or from the interest on deposits in banks in the United States of moneys belonging to foreign governments."

Resident Alien Corporations. A resident alien corporation is a foreign corporation having an office or place of business in the United States.10 Such corporations, being within the jurisdiction of the United States, are required to file returns in the same manner as domestic corporations, disclosing their net income from sources within the United States, but are allowed only the deductions and exemptions permitted to foreign corporations. No withholding of the tax at the source takes place against such corporations.11 Being taxable under the law the dividends of such corporations are corres

8 T. D. 1675.

9 T. D. 2425; Act of September 8, 1916, as amended by Act of October 3, 1917, § 30.

10 T. D. 2401.

11 Reg. 33, Art. 46.

pondingly exempt to the same extent as dividends of domestic corporations. Interest on the obligations of such corporations would seem to be taxable in the hands. of non-resident aliens and subject to deduction of the tax when paid to non-resident foreign partnerships or corporations.12 The term "resident foreign corporations" is used in this book to indicate corporations of this class.

Non-Resident Alien Corporations. The term "nonresident alien corporations" covers all corporations organized, authorized or existing under the laws of a foreign country and having no office or place of business in the United States.13 Such corporations are subject to the tax on all income from sources within the United States, and are required to file annual returns disclosing such income. Since such corporations are outside of the jurisdiction of this country, the act provides expressly that the tax on income from interest on bonds and dividends on stock of resident corporations shall be withheld at the source before the income leaves this jurisdiction. Provision is also made for collection of the tax by impressing a duty upon those in this country who have control, custody, receipt or disposal of the income of such corporations, as indicated in the following paragraphs. The term "non-resident foreign corporations" is used in this book to indicate corporations of this class.

Collection of the Tax at the Source. In the case of non-resident alien corporations as defined above, the

12 Act of September 8, 1916, § 1 and § 13 (e) as amended. Residence within the meaning of these provisions will probably be held to cover only cases where the principal business of the foreign corporation is transacted in this country, and payment of the interest is made here.

13 T. D. 2401.

normal tax is withheld at the source on all interest upon the bonds and mortgages or deeds of trust or similar obligations of resident corporations and upon all dividends upon the capital stock or from the net earnings of resident corporations. Such corporations cannot by filing any certificate or claim for exemption prevent the withholding of such tax, but may upon the filing of an annual return, which must include the amount of income on which the tax has been so withheld, claim a deduction of the amount so withheld and if the return discloses the fact that more tax has been withheld than is assessable against the corporation, the Treasury Department will order a refund of the excess amount withheld. For this purpose the return of the foreign corporation should have attached thereto a statement giving the names of the withholding agents and the amounts withheld respectively. For a further discussion of collection at the source see the chapter on that subject. There is no collection of the tax at the source on payments other than those described above, and in no case on payments made to resident alien corporations.

Nominal Stockholders. Where stock of domestic corporations stands in the name of nominal stockholders and the actual owners are non-resident foreign corporations, that fact must be disclosed. In cases where such corporations are nominal stockholders, withholding of the tax may be avoided by disclosing the actual owners. This subject is discussed in a preceding chapter 14

Resident Agents for Foreign Corporations. In addition to the provisions prescribed by the law for collection of the tax at the source on bond interest and dividends 14 See Chapter 7.

paid to non-resident foreign corporations, the Treasury Department has evolved a method of collecting the tax by impressing upon residents of this country, under certain circumstances, the duty of filing returns and accounting for the tax due from foreign corporations on the income which passes through their hands. A general discussion of the duties of such agents and their relation to the foreign-corporation principal is contained in a preceding chapter on Resident Agents for Non-resident Aliens and Foreign Corporations.15

Income Subject to Tax. The gross income of foreign corporations is all taxable income received from all sources within the United States, whether or not the corporation does business in this country or receives income from investments of any kind. From the amount of such gross income may be subtracted the sum of the deductions enumerated in the act, which deductions are similar to those allowed to domestic corporations, but limited to expenses or allowances properly chargeable against the income from this country.

STEAMSHIP COMPANIES. Where a foreign steamship company has steamers which touch American ports and which carry therefrom freight and passengers the return should show as gross income the total receipts from all outgoing boats whether freight or passenger. With the gross income thus ascertained, the ratio existing between it and the gross income from all ports both within and without the United States should be determined as the basis upon which deductions may be computed.16

15 See Chapter 6.

16 Letter from Treasury Department dated July 18, 1916; I. T. S. 1917, ¶ 1114.