# Appendix — Container Corp. of America v. Franchise Tax Bd. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385008_0362%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1983 - **Citation:** 463 U.S. 159 ## Text Appendix A In the Court of Appeal of the State of California First Appellate District Division Four 1/Civil 48990 (Superior Ct. No. 673-492) Certified for Publication Container Corporation of America, Plaintiff and Appellant, vs. Franchise Tax Board, Defendant and Respondent. [Filed April 14, 1981] Container Corporation of America appeals from a judg- ment denying partial refund of corporation franchise taxes paid for the income years 1963, 1964 and 1965. We affirm the judgment. The question is whether, under stipulated facts, appel- lant was properly treated as deriving income from sources both within and outside California (Rev. & Tax. Code, § 25101) on the basis that appellant and its foreign sub- sidiaries constituted a unitary enterprise. "Revenue and Taxation Code section 25101 for the period in question provided in part: “When the income of a taxpayer subject A-2 Appellant, a Delaware corporation headquartered in Chicago, is engaged in the production and distribution of paperboard packaging materials. Appellant is subject to corporation franchise taxes on its activities in California. During the disputed tax years, appellant controlled 20 subsidiaries in Western Europe and Latin America. All these subsidiaries except one were engaged in the paper- board packaging business. Appellant has assigned responsibility for its United States operations to regional vice-presidents, each respon- sible for corporate operations in his area. This same policy of decentralization was followed in setting up the foreign subsidiaries. Appellant’s first foreign operation was es- tablished in Colombia in 1944. The Colombian group di- rected legal work, selected and trained personnel, and pro- moted local sales; the parent corporation managed the technical and financial aspects of the business and supplied some equipment and raw materials. All the foreign sub- sidiaries were managed predominantly by local citizens. Self-reliance by the subsidiaries was encouraged. During the years in question, 38 of appellant’s approxi- mately 13,400 employees were assigned to foreign sub- A-3 sidiaries; some other employees of appellant were trans- ferred to foreign subsidiaries and were no longer on appellant’s payroll. Appellant had no special aim of transferring employees to the foreign subsidiaries. Such transfers generally responded to a specific need of a subsid- iary. If the subsidiary requested assistance from appellant in finding a person with particular qualifications, appellant might suggest one of its own employees. Employees trans- ferred to foreign subsidiaries usually continued to draw some pay from appellant, and fringe benefits except par- ticipation in appellant’s stock bonus plan were continued even after transfer. Language and cultural differences, and a perceived need to present an acceptable local image, did substantially inhibit transfer of employees from the parent corporation to the foreign subsidiaries. Only three of appellant’s executives dealt regularly with the foreign subsidiaries. Local employees were in day-to- day control, but all important moves of the subsidiaries were subject to review by appellant’s management. Appel- lant and its foreign subsidiaries usually reached decisions by mutual consent, but appe!'ant held local management re- sponsible for the performance of foreign subsidiaries. Ap- pellant was represented on the board of directors of most of the subsidiaries. There was no regular program for training in the United States of employees of foreign subsidiaries. But 10 or 12 times a year a foreign employee came to the United States for several weeks to learn appellant’s operations. The for- eign subsidiaries paid the cost of these visits. A-4 Appellant made loans to its subsidiaries totaling $7,704,987, $7,155,714 and $3,223,371, for the three disputed years. The subsidiaries also borrowed from local sources; appellant guaranteed approximately one-third of these loans. The foreign subsidiaries’ budgets were regularly sent to appellant for its information but specific approval was not required. Current financial data were furnished to appel- lant each month. The foreign subsidiaries provided appel- lant with a more detailed financial statement at the end of each year. Although appellant’s management thus kept in- formed of operations of the foreign subsidiaries, most fi- nancial decisions were made by the management of the individual companies. All the foreign subsidiaries except those in the Nether- lands and Germany were audited by the accounting firm which appellant used for its own audits. On the other hand, tax returns to foreign governments were locally prepared. These returns reported only the revenue produced and costs incurred by the subsidiary in the taxing jurisdiction. Each subsidiary used local law firms. Appellant purchased no raw materials or finished prod- ucts from its subsidiaries and did not engage in joint mar- keting efforts with them. Appellant sold paperboard and raw materials in small amounts to the foreign subsidiaries; those materials could have been obtained from other sources. Appellant also purchased paper products from out- side parties, for the benefit of the foreign subsidiaries. Ap- pellant entered into technical service agreements with some subsidiaries and provided such services for other subsidi- A-5 aries under informal arrangements. Appellant did not cooperate so extensively with any nonaffiliated companies. Occasionally, appellant assisted subsidiaries in the ac- quisition of equipment and machinery. Some of the equip- ment was purchased directly from appellant. Appellant also sometimes acted as a sales broker for the foreign subsidiaries. Although this function could have been per- formed by independent brokers, the commissions charged by the latter would probably be higher than the charge appellant made for the same services. Appellant contends that its California and out-of-state operations do not comprise a unitary enterprise to which respondent board may properly apply its formula for ap- portionment of income. Constitutional principles prohibit taxation in the absence of a link between the property to be taxed and the taxing entity. (See Mobil Oil Corp. v. Com- missioner of Taxes (1980) 445 U.S. 425, 436-437; Miller Bros. Co. v. Maryland (1954) 347 U.S. 340, 344-345.) Ap- pellant maintains that the “unitary method of ownership, use and operation of the business of the parent and its subsidiaries” was not established here. (See Edison Cali- fornia Stores v. McColgan (1947) 30 Cal.2d 472, 482.) Because the parties submitted the case to the trial court on a stipulation, the case presents no conflicting evidence. Therefore, this court is not constrained by the substantial evidence rule. The trial court’s findings are not binding on us and we must make our own determination of the ques- tions of law presented by the stipuleted fucts. (Rice Grow- ers’ Association of California v. County of Yolo (1971) 17 Cal.App.3d 227, 230, cert. den. 404 U.S. 941; Dealers In- A-6 stallation Service, Inc. v. State Bd. of Equal. (1970) 13 Cal. App.3d 395, 399; Chase Brass & Copper Co. v. Fran- chise Tax Bd. (1970) 10 Cal.App.3d 496, 502, cert. den. 400 U.S. 961; Standard Register Co. v. Franchise Tax Board (1968) 259 Cal.App.2d 125, 129-130.) A corporate taxpayer’s income must be subjected to apportionment* when it “is derived from or attributable to sources both within and without the State.” (Rev. & Tax. Code, § 25101, set out in fn. 1, ante; Honolulu Oil Corp. v. Franchise Tax Bd. (1963) 60 Cal.2d 417, 425; Superior Oil Co. v. Franchise Tax Bd. (1963) 60 Cal.2d 406, 417.) “[T]Jhe linchpin of apportionability in the field of state income taxation is a unitary-business principle.” (Mobi Oil Corp. v. Commissioner of Taxes, supra, 445 U.S. 425, 439.) The fairness of allocating to California a just proportion of the profits earned from a unitary business’ is settled. (See The California method of apportionment is explained in Keesling and Warren, The Unitary Concept in the Allocation of Income (1960) 12 Hastings L.J. 42, 43: “Under the formula method the business activities within the state are considered to be an insep- arable part of a business carried on both within and without the state. The total gross income from the entire business is determined. The allowable deductions are then subtracted and the remaining net income is apportioned within and without the state by means of an allocation formula consisting of various factors which are thought to be relevant in the production of income, such as prop- erty, payroll, and sales.” *Keesling and Warren also discuss the unitary treatment of multi- corporate enterprises (op. cit. supra, 12 Hastings Law Journal 42, 57): “In any case where a business would be considered unitary if conducted by one taxpayer, it should likewise be so considered A-7 Butler Bros. v. McColgan (1942) 315 U.S. 501, 509; El Dorado Ot Works v. McCoigan (1950) 34 Cal.2d 731, 738, app. dism., 340 U.S. 801; Edison California Stores v. Mc- Colgan (1947) 30 Cal.2d 472, 478; Butler Bros. v. McColgan (1941) 17 Cal.2d 664, 677-678, aff'd in 315 U.S. 501; Handlery v. Franchise Tax Bd., supra, 26 Cal.App.3d 970, 974.) The propriety of applying the unitary concept in taxing foreign corporations was established in Butler Bros. v. McColgan, supra, 17 Cal.2d 664. The court there noted that only in circumstances where the corporation’s California business is “truly separate and distinct from its business without this state, so that the segregation of income may be made clearly and accurately, that the separate accounting method may properly be used.” (/d., at pp. 667-668.) The court set out a three-part test to determine the unitary nature of a taxpayer’s business: “(1) unity of ownership; (2) unity of operation as evidenced by central purchasing, accounting and management divisions; and (3) unity of ducted within the state, so in the case of a group of affiliated cor- porations engaged in the conduct of a business, it may look at the total income of the group to determine the amount of income attributable to the portion of the business conducted within the state by one or more of the members of the group.” The fairness of the formula apportionment method is explained as follows: “[T]he ‘formula’ apportionment of unitary business in- come has not only been found to be constitutionally permissible, but . . . it is often the only reasonable and practical manner in which a state may levy and collect taxes to which it is constitu- tionally entitled. It might be described as a sort of rule of neces- sity, having its origin in the accommodation of a state’s constitu- tional right to tax income derived from within the state, to constitutional due process of law and interstate commerce provi- sions.” (Handlery v. Franchise Tax Bd. (1972) 26 Cal.App.3d 970, 974.) A-8 use in its centralized executive force and general system of operation.” (Jd., at p. 678; see Honolulu Oil Corp. v. Fran- chise Tax Bd., supra, 60 Cal.2d 417, 423; Superior Oil Co. v. Franchise Tax Bd., supra, 60 Cal.2d 406, 412; John Deere Plow Co. v. Franchise Tax Bd. (1951) 38 Cal.2d 214, 229, app. dism., 343 U.S. 939; Edison California Stores v. Mc- Colgan, supra, 30 Cal.2d 472, 478; Chase Brass & Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 502; Standard Register Co. v. Franchise Tax Board, supra, 259 Cal.App.2d 125, 129.) The first element, unity of ownership, is present here: the parent corporation owned the foreign subsidiaries. However, unity of ownership does not render a business unitary if the other two requirements are not met. (See Chase Brass & Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 502.) Unity of operation and unity of use are concepts that may to some degree overlap, but generally functions that in administrative theory are labeled “staff” fall within the “operation” category and “line” functions fall within the “use” category. (See Chase Brass & Copper Co. v. Fran- chise Tax Bd., supra, 10 Cal.App.3d 496, 502.) Determining the presence of unity between the parent corporation and _ the foreign subsidiaries in the area of operations is guided by various factors; no one element controls the decision. Although appellant bought no raw materials or finished products from its subsidiaries, appellant did sometimes sell small quantities of paperboard and raw materials to its subsidiaries. The subsidiaries could have obtained those materials from other sources at the same price appellant A-9 charged, but the access to materials stocked by the parent is of some relevance. (See Chase Brass € Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 503.) Appellant sold some of its used equipment to its sub- sidiaries during the period in question. Appellant also as- sisted its subsidiaries in the acquisition of equipment and machinery. Appellant sometimes contacted a subsidiary when considering disposition of a piece of equipment in good operating order that might assist in the subsidiary’s operation. Appellant assisted its subsidiaries in procuring paper, personnel and equipment. Appellant purchased some paper from third parties in order to convey such goods to its foreign subsidiaries. If a subsidiary was unable to fill an important vacancy, it would request assistance from ap- pellant in locating an individual with the proper qualifi- cations. Appellant generally looked within its own ranks for such a person. Appellant’s purchasing department played a part in procuring equipment from independent suppliers for the benefit of its subsidiaries. These purchas- ing and brokerage ties between parent and subsidiary are of some relevance. (See Chase Brass & Copper Co. v. Fran- chise Tax Bd., swpra, 10 Cal.App.3d 496, 503.) Although appellant and all but two of its foreign sub- sidiaries kept separate books of account, all the foreign operations were audited by the same accounting firm that audited appellant’s books. A format developed by appellant for the transmission of monthly and quarterly financial re- _ ports was used by the subsidiaries. A-10 Appellant loaned to its subsidiaries over $18,000,000 during the period in question. Appellant aiso guaranteed approximately one-third of the subsidiaries’ other loans. Although the subsidiaries may have been able to obtain credit from-other sources, the loans serve as “substantial evidence of unity of operation.” (Chase Brass & Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 503.) The fact that the subsidiaries could readily turn to ap- pellant for financial assistances points toward unity. (/d.) So does the foreign subsidiaries’ ability to utilize appellant as a guarantor of its loans. “It must have been deemed ad- vantageous to the over-all management to have handled the transaction in this way, otherwise a separate arrange- ment would have been made.” (Chase Brass € Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 503.) Although there were no common employee benefit plans, some employees of the subsidiaries remained on appellant’s payroll. Employees of appellant who transferred to the foreign subsidiaries were allowed to continne their em- ployee benefits, and seven such employees were given op- tions to purchase appellant’s stock. There was considerable interplay between appellant and its foreign subsidiaries in the area of corporate expansion. Although there was no continued effort by appellant to solicit business for its foreign subsidiaries, on at least one occasion appellant assisted in the negotiation of a contract for a foreign subsidiary. The third element, unity ‘of use, relates to executive forces and operational systems. (Superior Oil Co. v. Fran- chise Tax Bd., supra, 60 Cal.2d 406, 415; Chase Brass & A-1l1 Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 504.) Appeilant contends that the absence of a steady fiow of raw materials and manufactured goods between the parent corporation and its subsidiaries compels a conclu- sion that unity cf use is lacking. But the California Su- preme Court has twice held an operation to be unitary though there was no substantial flow of goods between cor- porate entities. (See Honolulu Oil Corp. v. Franchise Tax Bd., supra, 60 Cal.2d 417; Superior Oil Co. v. Franchise Tax Bd., supra, 60 Cal.2d 406.) In Superior Oil, supra, the Supreme Court declared that “[n]Jone of the three unities . . necessarily require the interstate movement of prod- ucts.” (Jd., at p. 415.) In Honolulu Oil, supra, the court rejected a contention that control by central management and centralized performance of service functions are in- sufficient alone to support a conclusion of a unitary opera- tion( id., at p. 423), and determined that “the mere fact that production and sale . . . are a local operation does not transform that operation to something distinct and apart.” (Id., at p. 424.) Citing Chase Brass & Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, appellant argues that Honolulu Oil and Superior Oil are not applicable outside the special facts presented in those cases. In Chase Brass this court held that a California subsidiary was not unitary with that part of its parent’s operation which dealt with materials not being purchased by the subsidiary. (/d., at p. 506.) But the decision does not depart from the earlier and binding holdings in Honolulu Oil and Superior Oil, supra. The ties which existed between the parent and subsidiary in areas beyond the subsidiary’s normal business activities appear A-12 to have been too tenuous to be given weight. Furthermore, the court noted that “(t]he fact of the sales alone .. . does not determine the business to be unitary.” (/d., at p. 506.) Appellant’s contention that a substantial flow of goods is essential to the existence of a unitary manufacturing or mercantile business must be rejected. Product flow is im- portant but it is only one of several factors to be evaluated in determining whether a business is unitary. Appellant complains that the imposition of the unitary apportionment system severely misallocates to California, income from foreign sources. Appellant suggests that to avoid such a result substantial flow of goods between the parent and the subsidiary should be prerequisite to a de- termination of unitary status. But the adoption of a dif- ferent formula than the one presently in effect is a legisla- tive matter. Because a substantial flow of goods between the parent and its subsidiaries is not requisite to unitary status, the operational interrelationship of the corporate entities must be evaluated. The integration of major executive functions is a factor of great importance pointing toward unity. (See Chase Brass & Copper Co. v. Franchise Tax Bd., supra, 10 Cal. App.3d 496, 504.) Although the everyday operations of the subsidiaries were handled by local employees, major policy decisions of the subsidiaries were subject to review by appellant. she ‘major policy matters’ are what count in our estimation of integration.” (Chase Brass & Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 504.) High officials of appellant gave directions to subsidiaries for compliance with the parent’s standard of professional- A-13 ism, profitability and ethical practices. Appellant con- stantly reviewed the financial reports of its subsidiaries; if these reports had not given sufficient information of a subsidiary’s condition, appellant would have intervened. The submission of financial reports on a monthly basis from the subsidiary to the parent corporation is of some significance. (See Standard Register Co. v. Franchise Tax Board, supra, 259 Cal.App.2d 125, 136.) Appellant’s offi- cials served on the boards of directors of most of the sub- sidiaries. Thus, control on the highest level was exerted by appellant. Appellant also employed a “foreign operations staff” to oversee the subsidiaries, to prepare studies re- garding the subsidiaries’ activities and to give directions to the management of the subsidiaries. Appellant’s policy of regional decentralization was fol- lowed by the subsidiaries. The parent corporation was involved with the training of local nationals for manage- ment positions. Appellant provided important personnel, equipment and financing to assist its first foreign subsidi- ary to enter the paperboard packaging industry. Such as- sistance in the initial stages of operation was crucial to the success of the subsidiary. Appellant continued to pro- vide technical assistance to its subsidiaries. The subsidi- aries had ready access to appellant’s expertise. The sub- sidiaries were only charged costs and an apportionment of overhead; in some cases the charges were not recovered. The extent of the technical assistance provided by appel- lant was substantial ; it included design work, sample pack- aging, marketing research, formula methods used in packaging and cost accounting. Appellant did not provide extensive technical service to any nonaffiliated corporations. A-14 The subsidiaries were prohibited from transferring infor- mation received from appellant to third parties. The consolidation of the domestic and overseas opera- tions extended to a public image of unity; in its 1963 an- nual report, appellant referred to the employees of subsidi- aries as its own employees. Appellant argues that the foreign subsidiaries are inde- pendent in their management, production, and distribution. But appellant’s organizational framework calls for de- centralisation even in its United States operations. The relation «niy; Setween parent and subsidiary comports with appellant’s general philosophy of local management and a reliance on key executives to meet corporate goals. Ap- pellant emphasizes the lack of product flow between the parent and the subsidiaries. But the low level of product exchange must be considered in conjunction with the na- ture of the business, high transportation costs and import restrictions. All but the latter consideration apply to ap- pellant’s United States operations. The desirability of creating an image of a locally operated enterprise is evi- dent. The court in Standard Register Co. v. Franchise Tax Board, supra, 259 Cal.App.2d 125, recognized this tendency. “At all times Pacific division attempted to create the image of its being a California manufacturer in order to compete in the western market which was very conscious of buying western.” (/d., at p. 132.) The characterization by the parent corporation of its subsidiary as an independent entity does not compel a finding that several divisions of a corporation are nonunitary. Here, as in Standard Regis- ter, a study of the operations of appellant and its subsidi- aries shows areas where the subsidiaries acted indepen- A-15 dently of appellant. But there are other areas in which the parent and subsidiaries contributed to each othe in unity of use and unity of operation. (See Slandard Register Co. v. Franchise Tax Board, supra, 259 Cal.App.2d 125, 134- 135.) Appellant’s own view of its operations as a unitary business is evidenced by statements in the company’s an- nual reports. Appellant identifies itself as “the world’s largest producer of paperboard packaging,” referring to overseas and domestic operations. Appellant also discussed in its reports the strategic location of packaging, printing and fabricating facilities both in the United States and abroad. Appellant stated that “[t]he overseas cperations of CCA continue to grow and to become a more substantial part of the company’s strength and profitability.” Appel- lant further projected the image of unity by referring to its subsidiaries as overseas operations or overseas divi- sions. Appellant’s self-image is relevant. (See Standard Register Co. v. Franchise Tax Board, supra, 259 Cal.App. 2d 125, 135.) The three unities are satisfied here. Although some ele- ments which normally exist in a unitary operation, e.g., a substantial flow of goods, are lacking, the combination of all the factors and ties between the parent and the subsidi- ary support respondent board’s determination that the operation is unitary. Appellant engaged in the same busi- ness activities as its subsidiaries. The administrative regu- lations indicate that a strong inference of a unitary busi- ness exists where tae taxpayer is engaged in the same type of business.‘ This administrative construction of the Cali- ‘California Administrative Code, title 18, section 25120, sub- division (b), provides in part: “The determination of whether the A-16 fornia tax laws “is entitled to great weight, and the courts generally will not depart from construction unless it is clearly erroneous or unauthorized.” (Coca Cola Co. v. State Bd. of Equalization (1945) 25 Cal.2d 918, 921; also see Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 647; Albright v. State of California (1979) 101 Cal. App.3d 14, 18; Cal. Correctional Officers’ Assn. v. Board of Administration (1978) 76 Cal.App.3d 786, 793-794; Clayton v. County of Los Angeles (1972) 26 Cal.App.3d 390, 396.) The interchange between parent and subsidiaries in the areas of technical assistance, development and man- agement policymaking, is significant. The portion of appellant’s business done within the State of California is dependent upon or contributes to the oper- ation of the business outside the state, (Superior Oil Co. v. Franchise Tax Bd., supra, 60 Cal.2d 406, 412; Edison California Stores v. McColgan, supra, 30 Cal.2d 472, 481; Chase Brass € Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 501.) Although in many respects the activities of the taxpayer constitute a single trade or business or more than one trade or business will turn on the facts of each case. In general, the activities of the taxpayer will be considered a single business if there is evidence to indicate that the divisions under consideration are integrated with, dependent upon or contribute to each other and the operations of the taxpayer as a whole. The following factors are considered to be good indicia of a single trade or business; and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a single trade or business: “(1) Same type of business: A taxpayer is generally engaged in a single trade or business when all of its. activities are in the same general line. For example, a taxpayer which operates a chain of retail grocery stores will almost always be engaged in a single trade or business.” A-17 foreign subsidiaries acted independently, the financing, gen- eral direction and control of the subsidiaries were in the hands of appellant. The subsidiaries were treated as over- seas divisions of the parent corporation, bringing appel- lant’s entire operation within the provisions of section | 25101 of the Revenue and Taxation Code and requiring ap- plication of the formula apportionment method in deter- mining the California taxes due from appellant. Appellant contends that the inclusion of its foreign sub- sidiaries in the apportionment base violates the California taxation statute as well as the due process clause. But Superior Oil Co. v. Franchise Tax Bd., supra, 60 Cal.2d 406, Honolulu Oil Corp. v. Franchise Tax Bd., supra, 60 Cal.2d 417, John Deere Plow Co. v. Franchise Tax Board, supra, 38 Cal.2d 214, and Max Factor & Co. v. Franchise Tax Bd. (1973) 35 Cal.App.3d 7, contradict appellant's ar- gument. The court in Max Factor, supra, noted that “Ap- pellant (Taxpayer) is a Delaware corporation doing busi- ness in California. In the years in question, it had three subsidiary corporations operating in foreign countries. .. . In determining the measure of California franchise tax, Taxpayer and its subsidiaries were properly treated as ‘engaged in a single unitary business.’ (See Rev. & Tax. Code, §§ 25101, 25102; Edison California Stores v. Me- Colgan, 30 Cal.2d 472, 479-480.)” (/d., at p. 9.) Appellant relies on Chase Brass ¢ Copper Co. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, as indicating that foreign sub- sidiaries should not be included in the apportionment base. Appellant states that “it seems fair to assume that the fact Braden was operating in a foreign country, as are the foreign subsidiaries in this case, was an important factor A-18 ¢ in the court’s determination.” The assumption is unwar- ranted. Although the operations of Braden Company were excluded, so were those of Bear Creek Company, a United States operation. (/d., at p. 506.) The court in Chase Brass distinguished between vertical and horizontal relationships. (See Chase Brass € Copper Oo. v. Franchise Tax Bd., supra, 10 Cal.App.3d 496, 502.) The taxpayer in Chase was a California subsidiary of a United States parent corpora- tion which also had other subsidiaries. Here, the taxpayer is the parent corporation; the vertical ties between parent and subsidiary are stronger than horizontal ties between sibling subsidiaries. The due process challenge to the inclusion of foreign subsidiaries in the apportionment base of a state’s taxation formula was rejected by the United States Supreme Court in Bass, etc., Ltd. v. Tax Comm. (1924) 266 U.S. 271. The court held that “[i]f the entire business of the corporation is not transacted within the State, the tax is tu be based upon the portion of such ascertained net income deter- mined by the proportion which the aggregate value of specified classes of the assets of the corporation within the State bears to the aggregate value of all such classes of assets wherever located.” (/d., at pp. 277-278.) The apportionment method was approved because the state meant to reach and in fact did reach only the profits earned within the state. Here, too, the California appor- tionment method is designed to reach profits earned within the state by combining all of appellant’s unitary opera- tions. The Supreme Court reiterated its basie premise in Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S. 425. The taxpayer in Mobil Oil did not argue that the state’s A-19 worldwide apportionment was inaccurate and unfair but asserted that foreign source income was subject to differ- ent tests. The Supreme Court in Mobil Oil stressed the importance of the unitary business principle as a justifica- tion for inclusion of foreign source income in a state’s apportionment base. (/d., at p. 438.) The Supreme Court noted the connection between due process requirements and the determination that a business is unitary: “Where the business activities of the . .. [subsidiaries] have noth- ing to do with the activities of the recipient in the taxing State, due process considerations might well preclude ap- portionability, because there would be no underlying uni- tary business. . . . Mobil has failed to sustain its burden of proving any unrelated business activity on the part of its subsidiaries and affiliates that would raise the question of nonapportionability.” (/d., at p. 442.) Due process demands that a minimal connection exist between the out-of-state activities and the taxing state and a rational relationship between income attributed to the out-of-state and the intrastate values of the enterprise. The tax may not be disproportionate to the business trans- acted by appellant in the taxing state. (Exxon Corp. v. Wisconsin Dept. of Revenue (1980) 447 U.S. 207, 219-220; Hans Rees’ Sons v. N. Carolina (1931) 283 U.S. 123, 135.) A sufficient nexus is established if the corporation “avails itself of the ‘substantial privilege of carrying on business’ within the state; .. .” (Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S. 425, 437; also see Exxon Corp. v. Wisconsin Dept. of Revenue, supra, 447 U.S. 207, 220.) A-20 Appellant asserts that the application of the apportion- ment formula to foreign subsidiaries fails to account for different wages, property costs and returns on sales. Appel- lant recognizes that there are variations in wages, property costs and returns on sales within the United States, but argues that the wholly different nature of the elements in foreign countries creates an unreasonable result. Variations in profitability within the United States have not precluded apportionment of income according to an appropriate for- mula. (See John Deere Plow Co. v. Franchise Tax Bd., supra, 38 Cal.2d 214, 224-225.) Where a company is engaged in a unitary business, a state may apply an apportionment formula to the taxpayer’s total income to arrive at a rough approximation of the corporate income attribvtable to activities within the state. (Exxon Corp. v. Wisconsin Dept. of Revenue, supra, 447 U.S. 207, 223; Moorman Mfg. Co. v. Bair (1978) 437 U.S. 267, 273.) There is no necessity for a substantial flow of goods between the parent and the subsidiary corporation. Although appellant may treat its foreign operations as independent, the business activities of the subsidiaries benefit substantially from “an umbrella of centralized management and controlled interaction.” (Exxon Corp. v. Wisconsin Dept. of Revenue, supra, 447 U.S. 207, 224.) Appellant points out that for its own purposes income derived from appellant’s United States operations is sepa- rately accounted for. But a taxpayer’s internal accounting methods are not binding on the taxing authorities. ( Exxon Corp. v. Wisconsin Dept. of Revenue, supra, 447 U.S. 207, 224: see Butler Bros. v. McColgan, supra, 315 U.S. 501. 507-508.) A-21 Appellant points to each of the factors used in the for- mula apportionment in California—wages, property and sales—and emphasizes the major differences between wage rates in the United States and those in other coun- tries. Appellant asserts that this wage differential is not offset by a higher level of productivity. But such variations in wages also exist in the United States, and do not pre- clude unitary treatment. Respondent may constitu ionally apply its apportionment formula to appellant’s total income in order to establish tax liability. Appellant had the “distinct burden of showing by ‘clear and cogent evidence’ that it results in extraterri- torial values being taxed.” (Butler Bros. v. McColgan, supra, 315 U.S. 501, 507: N. @ W. Ry. Co. v. No. Carolina (1936) 297 U.S 682, 688.) Appellant’s accounting evidence does not meet that burden. The fairness of applying the formula apportionment method must be evaluated in prac- tical terms. A state’s attempt to impose an accounting method in order to determine its proper share of the burden of taxation is “faced with the impossibility of allocating specifically the profits earned by the processes conducted within its borders.” (Underwood T’ Writer Co. v. Chamber- lain (1920) 254 U.S. 113, 121; also see Exron Corp. v. Wisconsin Dept. of Revenue, supra, 447 U.S. 207, 224.) California’s apportionment is not so burdensome as to violate due process. Appellant urges that its statistical evidence shows that the application of the apportionment formula yields a distorted result. The United States Supreme Court in Norfolk € W. R. Co. v. Tax Comm'n. (1968) 390 U.S. 317, wt A-22 329, held that “when a taxpayer comes forward with strong evidence tending to prove that the . . . formula will yield a grossly distorted result in its particular case, the State is obliged to counter that evidence or to make the accommo- dations necessary to assure that its taxing power is con- fined to its constitutional limits. If it fails to do so and if ... the taxpayer has . . . show[n] that the tax is so excessive as to burden interstate commerce, the taxpayer must prevail.” The evidence appellant presented with re- spect to the disproportionality of income allocation is not compelling. It fails to account for contributions to income which result from the functional integration and centraliza- tion of management which exist in a unitary operation. It is “misleading to characterize the income of the business as having a single identifiable ‘source.’ Although separate geographical accounting may be useful for internal audit- ing, for purposes of state taxation it is not constitutionally required.” (Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S. 425, 438; also see Exxon Corp. v. Wiscon- sin Dept. of Revenue, supra, 447 U.S. 207, 222-223.) Appellant contends, citing Japan Line, Ltd. v. County of Los Angeles (1979) 441 U.S. 434, that inclusion of its foreign subsidiaries in the apportionment formula is an unconstitutional burden on foreign commerce. But the ques- tion presented in Japan Line was “whether instrumentali- ties of commerce that are owned, based, and registered abroad and that are used exclusively in international com- merce, may be subjected to apportioned ad valorem prop- erty taxation by a State.” (/d., at p. 444.) The court did not reach questions as to “taxability of foreign-owned instrumentalities engaged in interstate commerce, or . of A-23 domestically owned instrumentalities engaged in foreign commerce.” (Id., at p. 444, fn. 7.) The Supreme Court dis- tinguished situations involving a lack of apportionment from those challenging the mathematical imprecision of an apportionment formula. Japan Line involved a situation “where true apportionment does not exist and cannot be policed by this Court at all.” (Jd., at p. 455.) Thus, Jepan Line does not affect the present case. The Constitution of the United States (art. 1, §8) pro- vides that “Congress shall have power... 3. To regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” Generally, if the state tax “is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not dis- criminate against interstate commerce, and is fairly related to the services provided by the State,” there is no imper- missible burden on interstate commerce. (Complete Auto Transit, Inc. v. Brady (1977) 430 U.S. 274, 279.) But when a state seeks to tax instrumentalities of foreign commerce, two additional considerations are involved. The first is the ‘enhanced risk of multiple taxation. The second is that state tax on instrumentalities of foreign commerce may impede federal uniformity in an area where such uniformity is essential. (Japan Line Ltd. v. County of Los Angeles, supra, 441 U.S. 434, 446-448.) “Due to the absence of an authoritative tribunal capable of ensuring that the aggre- gation of taxes is computed on no more than one full value, a state tax, even though ‘fairly apportioned’ to reflect. an instrumentality’s presence within the State, may subject foreign commerce ‘ “ ‘to the risk of a double tax burden to which [domestic] commerce is not exposed and which the A-24 commerce clause forbids.’”’ Evco v. Jones, 409 U.S., at 94, quoting J. D. Adams Mfg. Co., 304 U.S., at 311.” (Japan Line, Lid. v. County of Los Angeles, supra, 441 U.S. 434, 447-448.) Appellant’s multiple taxation claim rests predomi- nantly on the conflict between the California apportionment system and a separate accounting method. The variations which result from the imposition of two different methods of calculation do not necessarily violate the commerce clause. The Supreme Court has consistently held that the commerce clause “does not call for mathematical exactness nor for the rigid application of a particular formula; only if the resulting valuation is palpably excessive will it be set aside.” (Northwest Airlines v. Minnesota (1944) 322 U.S. 292, 325 [Stone. C.J., dissenting], quoted in Japan Line, Ltd. v. County of Los Angeles, supra, 441 U.S. 434, 455.) _ The totally international character of the corporate tax- payer in Japan Line is distinguished from the present situa- tion where a United States parent corporation attempts to ‘sever ties with its foreign subsidiaries for purposes of state taxation. The taxes levied by California are against appellant, a United States corporation doing business in the State of California, as opposed to a tax upon the for- eign subsidiaries. The normal variations entailed in the use of different accounting formulas do not create such multiple taxation problems as to require its prohibition here. Further, the tax imposed in Japan Line was on instrumentalities of foreign commerce. By contrast, the tax imposed here is on total corporate operations; there is no curb on the free flow of commerce. A-25 The unilateral act of one state may not be permitted to impede the conduct of United States foreign relations and foreign trade.’ Appellant argues that the California approach could lead to retaliation and the imposition of a heavier tax burden by other states. Appellant underscores the differences between the federal tax scheme and the California formula apportionment method. Appellant in- sists that use of the federal separate accounting methods would simplify and standardize the worldwide approach to taxation. Adoption of the federal approach would pur- portedly reduce or eliminate impediments to the flow of capital and technology between the nations. But federal legislation requiring a uniform method for state taxation has never been adopted. (See Mobil Oil Corp. v. Commis- sioner of Taxes, supra, 445 U.S. 425, 449.) The California statutory scheme here adopted does not impermissibly ‘Examples of ways in which state government formulas may impede federal uniformity are provided in Japan Line Ltd. v. County of Los Angeles, supra, 441 U.S. 434, 450-451: “A state tax on instrumentalities of foreign commerce may frustrate the achieve- ment of federal uniformity in several ways. If the State imposes an apportioned tax, international disputes over reconciling apportion- ment formulae may arise. If a novel state tax creates an asymmetry in the international tax structure, foreign nations disadvantaged by the levy may retaliate against American-owned instrumentalities present in their jurisdictions. Such retaliation of necessity would be directed at American transportation equipment in general, not just that of the taxing State, so that the Nation as a whole would suffer. If other States followed the taxing State’s example, various instrumentalities of commerce could be subjected to varying de- grees of multiple taxation, a result that would plainly prevent this Nation from ‘speaking with one voice’ in regulating foreign commerce. A-26 burden international commerce. Appellant, the parent cor- poration, is engaged in a unitary operation with its foreign subsidiaries. Thus, the total corporate operations are sub- ject to California’s apportionment formula. The judgment is affirmed. Certified for publication. Christian, J. We concur: Caldecott, P. J. Poche, J. [The judgment of the Court of Appeal is set forth in the final paragraph of its opinion and is not separately entered in the rec- ords of the Court.] A-27 Appendix 5 California Superior Court City and County of San Francisco No. 673-492 Container Corporation of America, Plaintiff, Vs. Franchise Tax Board, Defendant. [Filed Sept. 14, 1979] NOTICE OF INTENDED DECISION The above-entitled matter having come on for trial and evidence having been introduced by stipulation and through testimony, and the matter having been briefed and argued, was submitted to the Court on June 30, 1979. The Court renders herein its decision pursuant to Rule of Court 232. The action involves a suit for refund of franchise taxes paid by plaintiff Container Corporation of America (here- inafter referred to as CCA) under the Bank and Corpora- tion Tax Laws for the income years 1963, 1964 and 1965. The issues are whether plaintiff (CCA) and its foreign subsidiaries engaged in a unitary business and therefore subject to formula apportionment under Revenue and Tax- ation Code § 25101; and (2) if so, does the fact that plain- tiff CCA’s subsidiaries were located outside the United States render invalid the application of formula appor- tionment? A-28 I. The Court finds that CCA and its foreign subsidiaries were engaged in a unitary business and are therefore sub- ject to formula apportionment under Revenue and Taxation Code Section 25101. The unitary nature of a business is established by (1) unity of ownership, (2) unity of opera- tion, and (3) unity of use. Butler Brothers v. McColgan, 17 Cal, 2d 664 (1941), aff’d. 315 U.S. 501 (1942). CCA owned a controlling interest in its foreign sub- sidiaries. (Stipulation of Facts, Para. 10 and 25). Unity of operation may be shown by central purchasing, advertising, accounting and management divisions. Butler Brothers v. McColgan, supra. It may also be shown by a common legal staff, a common retirement plan and financ- ing services provided by one component of the business to another. Chase Brass &€ Copper Co. v. Franchise Tax Board, 10 Cal. App. 3d 496. If one of the above is not a factor in the taxpayer’s business, its absence does not prevent a finding of unity of operation. Honolulu Oil Corp. v. Franchise Tax Board, 60 Cal. 2d 417. CCA sold fibreboard, other paperboard and raw mate- rials to the foreign subsidiaries in small amounts. (Stip. Para. 141). CCA purchased some paper from third par- ties and sent it to the subsidiaries who then reimbursed CCA; the amounts involved are unknown. (Stip. Para. 143). CCA assisted the subsidiaries in their purchase of equipment; and some equipment was purchased from CCA itself. (Stip. Para. 147). Ninety-eight percent of the equip- ment purchased by the Latin American subsidiaries was purchased with the acceptance of CCA’s purchasing de- A-29 partment. (Stip. Para. 148). CCA and all subsidiaries ex- cept two were audited by the same accounting firm (Stip. Para. 138). Accounting methods were not standardized among CCA and its subsidiaries, however, CCA strove to attain efficient accounting systems and procedures. (Stip. Para. 139). Where a subsidiary recommended expansion into a market unfamiliar to the subsidiary, CCA made a study of the situation. The final decision whether to move into a new,market was made by CCA. (Stip. Para. 28). Major policy matters of the subsidiaries were generally subject to review by CCA. (Stip. Para. 74). Although CCA had a policy of “reaching decisions by mutual understand- ing rather than domination” CCA held management of the subsidiaries strictly responsible for their performance. (Stip. Para. 130). Finally, CCA loaned substantial amounts of money to its subsidiaries and guaranteed approximately one-third of loans obtained by the sub- sidiaries from other sources. (Stip. Para. 133). The fact that a subsidiary can turn to its parent for financial help is substantial evidence of unity of operation. Chase Brass & Copper Co. v. Franchise Tax Board, 10 Cal. App. 3d 496 (1970). CCA had control of major policy matters which is an important element of unity of use. And CCA did make some sales to its subsidiaries. Rf: Chase Brass & Copper Co. v. Franchise Tax Board, supra. In addition to CCA holding of the management of subsidiaries strictly re- sponsible for their performance, there were CCA repre- sentatives on the board of directors of almost all the subsidiaries. (Stip. Paras. 78, 94 and 110; and Exhibit E). CCA had a foreign operations staff responsible for over- A-30 seeing the subsidiaries and for proving a channel of com- munivations between CCA and the subsidiaries (Stip. Poras. 144-146). Such a flow is an element of unity of use. See Honolulu Oil Corp. v. Franchise Tax Board, supra; and Superior Oil Corp. v. Franchise Tax Board, supra, at 416. The Court further finds that based on these facts there are contributions and dependencies between CCA’s in- state business and its out-of-state business. Therefore, the formula allocation of income must be used. Butler Brothers v. McColgan, supra. The only hmitation on the use of the formula allocation of income is that it “must not produce an unreasonable result.” Id. at 671. An unreasonable re- sult has not been demonstrated by plaintiff. Furthermore, the operations within and without the state need not be “necessary and essential” to each other and to the business as a whole for the in-state operations to be an integral part of a unitary business. Superior Oil Corp. v. Franchise Tax Board, supra, at page 413-414. Il. The Court finds that the fact that CCA’s subsidiaries are located outside the United States does not render invalid the application of formula apportionment. The fact that a business operates in foreign countries, rather than only in foreign states, does not prevent the Court from finding that CCA and its foreign subsidiaries constitute a unitary business. (See Superior Oil Corporation v. Fran- chise Tax Board, supra, and Honolulu Oil Corporation v. Franchise Tax Board, supra.) The Court is satisfied that such a finding does not contravene any constitutional provisions. A-31 CCA has failed in its proof to demonstrate that the application of formula apportionment would deny it due process. The United States Supreme Court has upheld the unitary treatment of a foreign corporation and its in- state operations against due process challenges. (See Bass, Ratcliff & Gretton, Ltd. v. State Tax Commission (1924) 266 U.S. 271.) Similarly, application of formula apportionment would not violate the Commerce Clause. In Bass, Ratcliff € Gretton, supra, the unitary treatment of a foreign corporation and its in-state operations was upheld against Commerce Clause challenges. The Court finally finds that Japan Line, Ltd. v. County of Los Angeles ........ oe 47 U.S. Law Week 4477 (1979) is distinguishable from the facts herein and not applicable. The Court did not reach the question of “the taxability of foreign-owned instrumentalities engaged in interstate commerce or of domestically-owned instru- mentalities engaged in foreign commerce.” Id. at ........ N. 7, U.S. Law Week at 4480 N.7. The Court therefore finds for defendant Franchise Tax Board and against plaintiff Container Corporation of America. Upon proper demand and in accordance with Rule of Court 232, defendant is to prepare findings of fact, conclusions of law, consistent with the opinions herein. Dated: Sept. 11, 1979. /s/ DANIEL M. HANLON Daniel M. Hanlon Judge, Superior Court A-32 George Deukmejian, Attorney General Neal J. Gobar, Deputy Attorney General 110 West A Street, Suite 600 San Diego, California 92101 Telephone: (714) 237-7308 Attorneys for Defendant Superior Court of the State of California City and County of San Francisco No. 673 492 Container Corporation of America, Plaintiff, vs. Franchise Tax Board, Defendant. (Marked Filed by Court Clerk October 23, 1979) JUDGMENT AFTER TRIAL BY COURT The above-entitled matter came on regularly for trial on February 23, 1978, at 11:25 a.m., Plaintiff appearing by its attorneys Morrison & Foerster by Franklin C. Latcham and Prentiss Willson, Jr., and defendant appearing by its attorneys Evelle J. Younger, Attorney General, by Philip M. Plant, Deputy, and this being a proceeding properly triable by the court without any jury; the court having heard the testimony and considered the evidence together with written and oral argument; the Court having filed its notice of intended decision on September 14, 1979; and findings not having been requested; and good cause ap- pearing therefor: A-33 It Is Hereby Ordered, Adjudged and Decreed that plain- tiff Container Corporation of America take nothing by its action; and that defendant Franchise Tax Board recover its costs in the amount of $.........02.-........ Dated: October 19, 1979. Daniel M. Hanlon Daniel M. Hanlon, Judge Approved as to Form: Morrison & Foerster By: /s/ Franklin C. Latcham Attorneys for Plaintiff Container Corporation of America A-34 Appendix C CONTAINER CORPORATION OF AMERICA Parent and Non-One Hundred Percent Owned Subsidiaries of Container Corporation of America Parent: Mobil Corporation Subsidiaries: DOMESTIC T. R. Miller Mill Company, Inc. FOREIGN Carton de Colombia, S.A. Compania Colombiana de Empaques Bates, S.A. Occidental de Empaques, Ltda. Industria de Carbon del Valle del Cauca, S.A. Reforestadora del Cauca, S.A. Carton de Venezuela, S.A. Fibras Internacionales de Puerto Rico Molinos de Carton y Papel, S.A. Cartones Nacionaies, S.A. Cartoenvases Valencia, S.A. Corrugadora de Carton, S.A. Union Grafica, S.A. A-35 Appendix D Court of Appeal! of the State of California in and for the First Appellate District Division Four No. 48990 Container Corporation of America, Plaintiff and Appellant, vs. Franchise Tax Board, Defendant and Respondent. (Marked Filed by Court Clerk May 4, 1981) By the Court: The petition for rehearing is denied. Dated May 4, 1981 Caldecott, P.J. A-36 Appendix E Order Denying Hearing After Judgment by the Court of Appeal lst District, Division 4, Civil No. 48990 In the Supreme Court of the State of California In Bank Container Corporation of America v. Franchise Tax Board Appellant’s petition for hearing Denied. (Marked Filed by Court Clerk June 17, 1981) Bird Chief Justice Franklin C. Latcham Prentiss Willson, Jr. Thomas H. Steele Morrison & Foerster One Market Plaza Spear Street Tower San Francisco, CA 94105 Telephone: (415) 777-6000 Attorneys for Plaintiff and Appellant Container Corporation of America In the Court of Appeal of the State of California First Appellate District Division Four 1 Civil No. 48990 Container Corporation of America, Plaintiff and Appellant, vs. Franchise Tax Board, Defendant and Respondent. (Marked Filed by Court Clerk July 31, 1981) NOTICE OF APPEAL TO THE SUPREME COURT OF THE UNITED STATES Notice is hereby given that Container Corporation of America, the Plaintiff and Appellant above-named, hereby appeals to the Supreme Court of the United States from A-38 the entire final judgment of the Court of Appeal of the State of California entered in this action on April 14, 1981 (Petition for Rehearing denied by the Court of Appeal on May 4, 1981; Petition for Hearing denied by the Supreme Court of California on June 17, 1981), affirming the judg- ment of the Superior Court of the State of California, in and for the City and County of San Francisco. This appeal is taken pursuant to 28 U.S.C. § 1257(2). Dated: July 31, 1981. Franklin C. Latcham Prentiss Willson, Jr. Thomas H. Steele Morrison & Foerster By FRANKLIN C. LATCHAM Franklin C. Latcham Counsel for Plaintiff gnd Appellant A-39 Appendix G Title 18, California Administrative Code, § 25120: ... (b) Two or More Businesses.—One corporate entity may have more than one “trade or business.” In such cases, it is necessary to determine the business income attributable to each separate trade or business. The income of each business is then apportioned by an apportionment formula which takes into consideration the instate and outstate factors which relate to the business the income of which is being apportioned. Example: The taxpayer is a conglomerate with three operating divisions. One division is engaged in manufacturing aerospace items for the federal govern- ment. Another division is engaged in growing tobacco products. The third division produces and distributes motion pictures for theaters and television. Each division operates independently; there is no strong central management. Each division operates in this state as well as in other states. In this case, it is fair to conclude that the taxpayer is engaged in three sep- arate “trades or businesses.” Accordingly, the amount of business income attributable to the taxpayer’s trade or business activities in this state is determined by applying an appropriate apportionment formula to the business income of each business. The determination of whether the activities of the taxpayer constitute a single trade or business or more than one trade or business will turn on the facts of each case. In general, the activities of the taxpayer will be considered a single business if there is evi- dence to indicate that the divisions under considera- tion are integrated with, dependent upon ov contribute to each other and the operations of the taxpayer as a A-40 whole. The following factors are considered to be good indicia of a single trade or business; and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a single trade or business: (1) Same type of business: A taxpayer is gener- ally engaged in a single trade or business when all of its activities are in the same general line. For example, a taxpayer which operates a chain of retail grocery stores will most always be engaged in a single trade or business. > _ . A-41 Appendix H Hourly Earnings Rates Translated into United States Dollars for Wage Earners in Manufacturing Industries’ Year Country 1967 1968 1969 United States ............. $2.83 $3.01] ol $3.19 be FS Fi oo Bethy 1.21M 1.28M 1.36M 75F SOF 96F GSC 88 93 99 Barbados . 34 39 43 SE cs acy sipiv he vows Cowes the’ 1.04M 1.09M 1.19M S7F T1F 77F er Sve,. os Lehn pa dauhe. 38 35 41 ES Ce eae oe .18M 17M 17M 15F 14F 15M I ao ek Ue 2.22 2.40 2.60 SS eae 36 36 38 ES a 29 30 31 ee EE TOE 1.62 1.80 2.02 Ne i ee .20 22 31 Lt Get) APE eae 1.00M 1.12M 1.21M .69F .T7F S85F A a a ee Fae 69 77 76 Germany, F.R. 1.25M 1.30M 155M S6F .90F 1.08F a .28 31 33 a 42 46 50 ORR it ae 68 71 78 oo Rs Se, ee 65 77 91 a UIE en aa ll 17 REN EG eae a 62 65 .68 ee ee 92 97 1.28 | NR Se i, OP ay ee 1.46M 157M 1.72M Philipp ae IETS ats ay Pe a SRR cen? nie 1.39 1.55 1.65 pase RR > ag ae ene Al 45 50 al: Aes SEO ERS Baa esi 13 14 14 iy ES aS = ee ets a 191M 2.02M 2.21M 1.47F 1.57F 1.74F es SRR Ss eee 1.33 1.42 1.49 United Kingdom ............... 1.16 1.23 1.34 Venezuela aa GOT AA Tala 99 1.07 1.04 *Source: United Nations, monthly Bulletin of Statistics, Decem- ber 1972, Table 57, at 148, based on data from International Labour Office. M refers to wages of males and F, wages of females; in other countries single composite figures are given. Figures normally in- A-42 clude bonuses, cost of living allowances, taxes, social insurance con- tributions payable by the employed person and, in some cases, pay- ments in kind. They normally exclude social insurance contributions payable by the employers, family allowances and other social secu- rity benefits. In a few instances, family allowances and salaried employees have been included in the figures. The information pub- lished by the United Nations is stated in terms of the local currency, which we have translated into dollars by the applicable midpoint exchange rates (in most cases) published in the United Nations Statistical Report, p. 216. In these cases in which daily, weekly, or monthly wage rates are given in the U.N. figures, we have assumed an 8-hour day, 44-hour week or 190.5-hour month for conversion purposes, which we regard as highly conservative. The foregoing table omits some of the countries as to which information is pro- vided, most of which are in the Soviet bloc. In all cases with respect to the countries omitted, the average hourly earnings are substan- tially below those of the United States. A-43 Appendix I Percentage of U.S. Average Hourly Compensation, Adjusted for Estimated Differences in Productivity’ Country 1060 1970 EE acts Garth's 3 Fakdee sx nan dds cabenes 40 40 ling ang keso on0'ken-o 950s ces 8 61 72 ay 5 a eo Sevevaw seePue v0 65 68 NE ad bag in Coes) kn vn o ween oo Dians 60 61 YI MEs 0 Kvn: Wasa pedivad s bkeAee ne 79 82 MA is ten ovhe ch eawinn onceds bhness 58 54 Ee Le vs chi ater pehaten ohekeeat 62 67 Rin o0Gdblnn Viksce fas vedtivkess 74 71 bd.