CHAPTER III TAX ON FOREIGN CORPORATIONS Revenue Act of 1924. SEC. 700 (a) (2) Every foreign corporation shall pay annually a special excise tax with respect to carrying on or doing business in the United States, equivalent to $1 for each $1,000 of the average amount of capital employed in the transaction of its business in the United States during the preceding year ending June 30. Regulations 64. ART. 22. Basis of the tax.-The basis of the tax in the case of a foreign corporation is "carrying on or doing business in the United States." Foreign insurance companies are not liable to capital stock tax. (See art. 17.) A foreign corporation is carrying on or doing business in the United States if it maintains an agent or an office or warehouse in the United States or in any other way enters the United States for the purposes of its business. The purchase of supplies in the United States in the furtherance of continued efforts in the pursuit of profit or gain is carrying on or doing business in the United States. ART. 23. Capital employed in the United States.-The "capital employed in the transaction of its business in the United States" means the portion of the total capital, surplus, and undivided profits of the foreign corporation utilized for the purpose of doing business in the United States. A foreign corporation may have income from sources within the United States for the purpose of the income tax and yet not have capital employed in the transaction of business here for the purpose of the capital-stock tax. A foreign corporation not actually doing business in the United States is not subject to tax, and, accordingly, the investment of a part of its funds in United States stocks and securities will not constitute capital employed in its business in the United States. For the definition of "do ing business" see article 11. If a corporation does business in this country, then, although the mere investment of funds in United States securities is not such a taxable employment of capital, such investment will constitute capital employed in the transaction of business in the United States if made in a subsidiary corporation which the foreign corporation uses as an instrumentality for the conduct of its own business in the United States. Thus the investment of the funds of a foreign corporation in the purchase of facilities, although apparently independent, for the purpose of its business here or the purchase of stock and securities of a subsidiary corporation for the same purpose will constitute the employment of capital in the transaction of business in the United States. A foreign corporation may not escape taxation by organizing or purchasing the stock of another corporation to own the facilities which the foreign corporation needs in its business. ART. 24. Capital employed in the United States illustrated. -A foreign corporation may employ capital in the transaction of its business in the United States in various ways. For example, the investment of funds in property in the United States used in its business, in stocks and securities of subsidiary corporations as explained in article 23, in bills and accounts receivable representing business done in the United States, in merchandise kept here for sale, in materials manufactured here, and in deposits in United States banks maintained for use in business here. Generally speaking, approximately such proportion of the entire capital of a foreign corporation will presumably be employed in the transaction of its business in the United States as the gross amount of its business in the United States bears to its, total gross business, but this will not always be conclusive, since a corporation may conceivably transact a greater or less volume of business in one country than in another on the same amount of capital. ART. 25. Return by foreign corporation.-Every foreign corporation carrying on or doing business in the United States shall make return on Form 708, irrespective of the amount of capital employed in this country in the transaction of its business. The capital actually employed in the transaction of the business of a foreign corporation in the United States and the tax payable thereon shall be calculated in accordance with the instructions on the form. ART. 26. Computation of tax.-The tax is at the rate of $1 for each full $1,000 of the capital of a foreign corporation actually employed in the transaction of its business in the United States, and is in all cases to be computed on the basis of the average amount of capital so employed during the preceding year ending June 30. The measure of the tax is accordingly different from that of domestic corporations which pay a tax measured by the fair average value of their capital stock. No deduction from the total fair average amount of capital so employed is allowed in computing the tax. ART. 27. Measure of tax.-The measure of the tax is the average amount of capital employed in the transaction of business in the United States during the preceding fiscal year. It will usually be sufficient to determine the amount of capital so employed at the beginning of each year and the amount so employed at the end of such year, and to divide the sum of such amounts by two. Where, however, there have been material changes in the amount of capital, the average amount should be determined with due regard to the times at which such changes occurred. A foreign corporation may, if it so desire, compute the average amount of capital employed on a monthly basis. CHAPTER IV EXEMPTIONS Revenue Act of 1924. SEC. 700 (b) The taxes imposed by this section shall not apply in any year to any corporation which was not engaged in business (or, in the case of a foreign corporation, not engaged in business in the United States) during the preceding year ending June 30, nor to any corporation enumerated in section 231, nor to any insurance company subject to the tax imposed by section 243 or 246. Regulations 64. ART. 28. Corporation not in business during preceding year. The tax being payable in advance does not apply to any corporation which was not engaged in business during any part of the fiscal year preceding the year for which the tax is due, but if it was in business even one day of the preceding year and one day of the taxable year it is subject to the tax. There is no relation between the amount of the tax payable and the length of time the corporation was in business. A corporation engaged in business during a part of the preceding year, but not engaged in business at the beginning of the taxable year, is not required to make any return if it is dissolved. If it is in process of dissolution, a return complete in all details should be filed, with supplemental statement showing that it has discontinued all business activities excepting such only as are necessary to effect the dissolution. If it is only temporarily inactive and subsequently during the year reëngages in business it should file a return in the month in which it recommences business and pay the tax due from the first of such month to the end of the taxable year. A corporation organized and beginning corporate activities on or after July 1 is not subject to tax for the remainder of the taxable period in which the company was organized, unless, as of July 1, it takes over the business of an organization which was subject |