# Amicus Curiae Brief — Alcan Aluminum Corp. v. Franchise Tax Board

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1994
- **Citation:** 512 U.S. 1234

## Text

tsproma Court, US |
4 EILEO

No. 92-1751 MUN 2 1995
Orfice OE THe =

IN THE
Supreme Court of the Wuited States

OCTOBER TERM, 1992

ALCAN ALUMINUM CORPORATION,
Petitioner,
Ve

FRANCHISE TAX BOARD OF THE STATE OF CALIFORNIA,
Respondent.

On Petition for a Writ of Certiorari to the
Court of Appeal of the State of California
in and for the Second Appellate District

BRIEF OF THE GOVERNMENT OF CANADA
AS AMICUS CURIAE SUPPORTING PETITIONER

F. EUGENE WIRWAHN

Chestnut Oaks

Route One, Box 176B

Aldie, Virginia 22001

(703) 327-4871

Counsel for the Government of
Canada as Amicus Curiae

WILSON - Epes Printina Co., Inc. - 789-0096 - WASHINGTON. D.C. 20001

QUESTION PRESENTED

Whether the application of the corporate income ap-
portionment formula, known as worldwide combined re-
porting, to domestic corporations with foreign parents
violates the Foreign Commerce Clause of the United
States Constitution, Article 1, Section 8, Clause 3.

(i)

TABLE OF CONTENTS

Page
oc ss | SE i
py iy Ct lye) | See iv

INTEREST OF THE GOVERNMENT OF CANADA. 1
CESSES AEA a dee I 3

et EERE ERT ESS Rt OC 6

I. THE APPLICATION OF WORLDWIDE COM-
BINED REPORTING TO DOMESTIC SUB-
SIDIARIES OF FOREIGN CORPORATIONS
CREATES AN ENHANCED RISK OF MUL-
Sean ta AS i 6

Il. THE USE OF WWCR PREVENTS THE
UNITED STATES GOVERNMENT FROM
SPEAKING WITH ONE VOICE WHEN REG-
ULATING COMMERCIAL RELATIONS WITH
FOREIGN GOVERNMENTS Wn... 9

ENED RDI NOT OSE TE 13

(iii)

iv

TABLE OF AUTHORITIES
Cases: Page

Alcan Aluminum Corporation v. Franchise Tax
Board of the State of California, No. B065648
(Court of Appeal of the State of California,
Second Appellate District, Division Three), un-

published opinion (Nov. 11, 1992) .......000.000.0... 9
Container Corp. of America v. Franchise Tax Bd.,
RR oa 2,3, 7,8
Franchise Tax Board of California v. Alcan Alumi-
num, Ltd., 483 U.S. 381 (1990) —....00002 3
Constitution, Statutes and Treaties:
California Revenue and Taxation Code § 25110.... 5

Convention between Canada and the United States
of America with Respect to Taxes on Income and
Capital signed at Washington on September 26,
1980, 1984 C.T.S. 15, T.I.A.S. No. 11087 -........... 7
Exchange of letters between the Honourable Allan
J. MacEachen, Deputy Prime Minister and
Minister of Finance of Canada, and the Honour-
able G. William Miller, Secretary of the Treas-
ury of the United States, (September 26, 1980),
with reference to The Convention Between the
United States of America and Canada with
Respect to Taxes on Income and Capital (Sep-
tember 26, 1980), 1984 C.T.S. 15, p. 64, I Tax
ry. A et Ee | RENE Aen ea 3-4
Convention Between the United States and France
concerning Double Taxation, and Protocol
signed at Paris on April 27, 1982, 164 LTS 211,

TS 885, 49 Stat. 3145, Article IV .........0..0........ 7
Internal Revenue Code of 1986, as amended: 26
Tc aunen 10

Protocol to the Convention Between the United
States of America and the French Republic
with Respect to Taxes on Income and Property
of July 28, 1967, as amended by the Protocol of
October 12, 1970, signed on November 24, 1978,
2 Tax Treaties (CCH) { 8084 .......2......2... 4

ee rere ee

v

TABLE OF AUTHORITIES—Continued

United Kingdom Income and Corporation Tazes
Act, (U.K.), 1988, c. 1., sections 812-815 ..._.......
United Nations Model Double Taxation Conven-
tion Between Developed and Developing Coun-
tries, U.N. Doc. ST/WSA/102 (1980); Report
of the OECD Comm. on Fiscal Affairs, Model
Double Taxation Convention on Income and on
Capital (1977) ~.............

Miscellaneous:

Aide-Memoire from Government of Japan, August
Te: MID cintacitiidicesattiibipaidioes bit Mielianeactatinlith acl ie thitaeiactustbideiintheie
Aide-Memoire from Government of Japan, June 6,

Brief Amicus Curiae of the United States in Sup-
port of Plaintiff and Appellant Alean Aluminum
Corporation, Alcan Aluminum Corporation v.
Franchise Tax Board of the State of California,
Court of Appeal of the State of California, Sec-
ond Appellate District (April 1992)-............0...

Demarche No. 383/83 from Embassy of Australia,
yk ER NS Rs Tr ae a ee ee

Demarche from Belgium, President European
Communities, on behalf of the Member States
of the European Communities, June 29, 1982....

Demarche from Belgium, President European
Communities, supported by the Member States
of the European Communities, the European
Commission, and the Embassies of Australia,
Japan, Canada, and Switzerland, January 1,

SOE sccrcctisnnieiecihsiteientibiitaieeadiitiie haaceeiite, ee. |
Demarche from the gary of Germany, Novem-
a
Demarche from Greece, President European Com-
munities, on behalf of the Member States of the
European Communities, August 1, 1983...............

Page

12

vi

TABLE OF AUTHORITIES—Continued

Demarche from Greece, President European Com-
munities, on behalf of the Member States of the
European Communities, September 23, 1983...

Demarche from Ireland, President European Com-
munities, on behalf of the Member States of the
European Communities, December 20, 1984........

Demarche from Italy, President European Com-
munities, on behalf of the Member States of the
European Communities, March 138, 1980 ~...........

Demarche from the Member States of the European
Communities and the Commission of the Euro-
pean Communities, August 30, 1985 -.................

Demarche from the Commission of the European
Communities and the Embassy of Luxembourg,
I a aliarrsecihectceaetiiekctrnateticnnincwnene

Demarche EA-14533 from Embassy of the Nether-
Pe, a A, TT annonces...

Demarche from the United Kingdom, President
European Communities, on behalf of the Mem-
ber States of the European Communities, July
aR IRRPSEE eS RP Ne AS Bn a cee CE

Demarche No. 51 from the United Kingdom Em-
Se es ee he ei...

Demarche No. 83 from the United Kingdom Em-
Se es OE oe a.

Demarche No. 211 from the United Kingdom,
President European Communities, on behalf of
the Member States of the European Communi-
SE ee Gh Re inns se.

Demarche No. 461.20-LJ/hu from Embassy of
Switzerland, November 15, 1983 ~...........0000000.......

Diplomatic Note No. 692 from Canada to the
United States, December 22, 1981...

Diplomatic Note No. 245 from Canada to the
United States, May 10, 1982 ...W0..0.

Diplomatic Note No. 283 from Canada to the
United States, June 14, 1982...

Diplomatic Note No. 481 from Canada to the
United States, September 28, 1983 000.2...

Page

vii
TABLE OF AUTHORITIES—Continued

Diplomatic Note No. 338 from Canada to the
United States, June 17, 1986 ................200020......-----
Hearings on H.R. 5076 before the House Commit-
tee on Ways and Means, 96th Cong., 2d Sess.
(1980), (statement of Donald C. Lubick, Assist-
ant Secretary of the Treasury for Tax Policy) ..
Hearings on S. 1974 before the Senate Committee
on Finance Subcommittee on Taxation and Debt
Management, 99th Cong., 2d Sess. (September
29, 1986), (statement of J. Roger Mentz, Assist-
ant Secretary of the Treasury for Tax Policy) ....
House of Commons Official Report, Parliamentary
Debates, (Hansard), Column 528 of the Official
Record of 18 May, 1993, Vol. 224, No. 178........
Letter of his Excellency, Allan Gotlieb, Cana-
dian Ambassador to the United States, to the
Honourable Donald T. Regan, United States
Secretary of the Treasury, August 11, 1983........
Letter of the Honourable Marc Lalonde, Minister
of Finance of Canada, to the Honourable Donald
T. Regan, Secretary of the United States De-
partment of the Treasury, August 11, 1983........
Letter of his Excellency, Allan Gotlieb, Cana-
dian Ambassador to the United States, to the
Honourable Donald T. Regan, United States
Secretary of the Treasury, August 23, 19838 ......
Letter of the Right Honourable Pierre Elliott
Trudeau, Prime Minister of Canada to his Ex-
cellency, Ronald Reagan, President of the United
States, September 24, 1983 ......... on.
Letter of the Honourable George P. Shultz, United
States Secretary of State, to the Governor of
California, January $0, 1986 ...............................
Letter of his Excellency, Allan Gotlieb, Cana-
dian Ambassador to the United States, to the
United States Secretary of State, Secretary of
the Treasury, and Attorney General, Septem-
ge ag NN eR I REA et A RA

Page

4

12

5, 12

viii
TABLE OF AUTHORITIES—Continued

Letter of his Excellency, Julian Santamaria, Am-
bassador of Spain, on behalf of the Member
States of the European Communities, to the
Honourable James A. Baker III, United States
Secretary of State, June 30, 1989 0...

Memorandum to the United States Department of
the Treasury on the Issue of State Taxation by
Worldwide Combination and Formula Appor-
tionment “Unitary Taxation,” Federal Republic
of Germany, Federal Ministry of Finance p. 5,
nuns

Statistics Canada, Catalogue 67202, “Canada’s In-
ternational Investment Position,” 1992 ............

Statistics Canada, International Trade Division,
BR ae nia cE Re APR i re dh A

Page

11

In THE
Supreme Court of the United States

OCTOBER TERM, 1992

No. 92-1751

ALCAN ALUMINUM CORPORATION,
. Petitioner,
FRANCHISE TAX BOARD OF THE STATE OF CALIFORNIA,
Respondent.

On Petition for a Writ of Certiorari to the
Court of Appeal of the State of California
in and for the Second Appellate District

BRIEF OF THE GOVERNMENT OF CANADA
AS AMICUS CURIAE SUPPORTING PETITIONER

INTEREST OF THE GOVERNMENT OF CANADA

Petitioner, Alcan Aluminum Corporation (“Alcan”),
is a member of a multinational corporate group based in
Montreal, Quebec, Canada and a U.S. subsidiary of a
Canadian corporation, Alcan Aluminium Limited (“Lim-
ited”). The Alcan Petition makes it clear that Limited
and its non-U.S. subsidiaries have no permanent estab-
lishments in California, yet they are adversely affected by
Respondent Franchise Tax Board’s (““FTB’’) application
of worldwide combined reporting (““WWCR’’) to Alcan.
Other multinational corporate groups based in Canada
and elsewhere outside the United States, with which Cali-
fornia has no jurisdictional link whatsoever, are similarly

2

affected by FTB’s use of WWCR.” Thus, the taxation at
issue in this Petition is different from the domestic taxa-
tion this Court has previously considered.* The taxation
here is in reality of international rather than local con-
cern. Canada shares that concern.

In the interest of preserving commerce between Canada
and the United States,* eliminating the serious adverse
consequences of WWCR for Canadian corporations, and
ending the disruption to the international taxation frame-
work caused by WWCR, Canada hereby submits this brief
amicus curiae in support of Petitioner.*

1See, for example, amicus curiae brief of the Government of
the United Kingdom and amici curiae brief of the twelve Member
States of the European Communities: Belgium, Denmark, France,
Federal Republic of Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain and the United Kingdom; and
the Governments of Australia, Austria, Canada, Finland, Japan,
Norway, Sweden and Switzerland, filed in this Court in support of
Petitioner in Barclays Bank PLC v. Franchise Tax Board, No.
92-1884 (April 22, 1993).

2 Container Corp. of America v. Franchise Tax Bd. 468 U.S.
159 (1983).

3 Canada and the United States have the largest bilateral trade
and economic relationship in the world. In 1992, two-way trade
was almost $184 (U.S.) billion. Canada accounted for approxi-
mately 21% of all U.S. exports, and more than 77% of Canada’s
exports went to the U.S. In that year, imports by Canada from
California exceeded $5 (U.S.) billion, and Canadian exports to
California were almost $5 (U.S.) billion. Statistics Canada, Inter-
national Trade Division, 1993.

At the end of 1992, total United States investment in Canada
amounted to $198.8 (U.S.) billion, representing about 47% of
all foreign investment in Canada. Of this total, U.S. direct
investment in Canada was approximately $68.7 (U.S.) billion,
representing about 64% of all foreign direct investment in Canada.
Canadian direct investment in the United States at the end of
1992 was more than $45.5 (U.S.) billion. Statistics Canada, Cata-
logue 67202, “Canada’s International Investment Position,” 1992.

* Petitioner and Respondent have consented to the filing of this
brief amicus curiae in letters filed with the Clerk of this Court.

3
STATEMENT

Since 1983, when this Court reserved determination
of the issue presented,° Alcan and Limited have been
seeking relief in both Federal and state courts in the
United States. From 1984 until 1990, Limited was in-
volved in litigation with FTB over its use of WWCR in
United States Federal Courts: the District Court for the
Northern District of Illinois; the Court of Appeals for
the Seventh Circuit; and this Supreme Court of the
United States, which held that while Limited had stand-
ing as the sole stockholder of Alcan to challenge WWCR
on foreign commerce clause grounds, the Tax Injunction
Act barred the action.® In accordance with this Court’s
decision, Alcan resumed the litigation in California: in
the Los Angeles County Superior Court; the Second Ap-
pellate District, Division Three of the Court of Appeal
of the State of California; and the California Supreme
Court, which denied its Petition for review in December
1992.

Canada and the other main trading partners of the
United States, including the United Kingdom and the
Member States of the European Communities, filed amici
curiae briefs supporting Limited and Alcan. Other coun-
tries and their corporations have been involved in similar
searches for a judicial resolution.’ Canada and other
members of the international community have continued
to register by diplomatic channels their objection to FTB’s
intrusion into the international tax framework.* The con-

5 Container Corp., supra at 189, n. 26 and 195, n. 32.

8 Franchise Tax Board of California v. Alcan Aluminium, Ltd.,
483 U.S. 331 (1990).

7 For example, Barclays Bank PLC v. Franchise Tax Board, No.
92-1884 (1993); Shell Petroleum, N.V. v. Graves, 709 F.2d 593
(CA9), cert. denied, 464 U.S. 1012 (1983); EMI Ltd. v. Bennett,
738 F.2d 994 (CAQ9), cert. denied, 469 U.S. 1073 (1984).

8 September 26, 1980 Exchange of Letters between the Honourable
Allan J. MacEachen, Deputy Prime Minister and Minister of Fi-

4

nance of Canada, and the Honourable G. William Miller, Secretary
of the Treasury of the United States (September 26, 1980), with
reference to The Convention Between the United States of America
and Canada with Respect to Taxes on Income and Capital, 1984
C.T.S. 15; p. 64, I Tax Treaties (CCH) 1317MB; Diplomatic
Note No. 692 from Canada to the United States, December 22,
1981; Diplomatic Note No. 245 from Canada to the United States,
May 10, 1982; Diplomatic Note No. 283 from Canada to the United
States, June 14, 1982; Letter of his Excellency, Allan Gotlieb,
Canadian Ambassador to the United States, to the Honcurable
Donald T. Regan, United States Secretary of the Treasury, Aug-
ust 11, 1983; Letter of the Honourable Marc Lalonde, Minister of
Finance of Canada, to the Honourable Donald T. Regan, Secretary
of the Treasury of the United States, August 11, 1983; Letter of
his Excellency, Allan Gotlieb, Canadian Ambassador to the
United States, to the Honourable Donald T. Regan, United States
Secretary of the Treasury, August 23, 1983; Letter of the Right
Honourable Pierre Elliott Trudeau, Prime Minister of Canada, to
his Excellency, Ronald Reagan, President of the United States,
September 24, 1983; Diplomatic Note No. 481 from Canada to the
United States, September 28, 1983; Diplomatic Note No. 338 from
Canada to the United States, June 17, 1985; Letter of his Excel-
lency, Allan Gotlieb, Canadian Ambassador to the United
States, to the United States Secretary of State, Secretary of the
Treasury, and Attorney General, September 30, 1987.

Protocol to the Convention Between the United States of Amer-
ica and the French Republic with Respect to Taxes on Income
and Property of July 28, 1967, as amended by the Protocol of
October 12, 1970, signed on November 24, 1978, 2 Tax Treaties
(CCH) {| 8034; Demarche from Italy, President European Com-
munities, on behalf of the Member States of the European Com-
munities, March 18, 1980; Demarche No. 51 from the United
Kingdom Embassy, March 25, 1980; Demarche No. 211 from the
United Kingdom, President European Communities, on behalf of
the Member States of the European Communities, October 30,
1981; Demarche No. 83 from the United Kingdom Embassy, May
18, 1982; Demarche from Belgium, President European Communi-
ties, on behalf of the Member States of the European Communi-
ties, June 29, 1982; Demarche from Greece, President European
Communities, on behalf of the Member States of the European
Communities, August 1, 1983; Aide-Memoire from Government
of Japan, August 11, 1983; Demarche from Greece, President
European Communities, on behalf of the Member States of the
European Communities, September 23, 1988; Demarche No. 383/83

5

troversy has been partially responsible for stalling some
bilateral tax treaty negotiations with the United States.°

The “water’s edge election” statute California enacted
in 1986 and that became effective in 1988*° has not
eliminated the problems caused by FTB’s continued reli-
ance upon WWCR. Though corporations can now “elect”
whether FTB can apply WWCR to them, they must pay
a substantial fee for the “privilege” and contract with
the FTB to be bound by that election for a rolling ten
year period. Under this contract, corporations must also
agree to accept burdensome information requirements to
be imposed solely at the discretion of FTB. The con-
tract also provides for a penalty—the reimposition of
WWCR without any refund of the election fee—which

from Embassy of Australia, November 7, 1983; Demarche No.
461.20-LJ/hu from Embassy of Switzerland, November 15, 1983;
Demarche from the Republic of Germany, November 28, 1983;
Demarche EA-14533 from Embassy of the Netherlands, Decem-
ber 21, 1983; Demarche from Belgium, President European Com-
munities, supported by the Member States of the European Com-
munities, the European Commission, and the Embassies of Aus-
tralia, Japan, Canada, and Switzerland, January 1, 1984; Demarche
from Embassy of Belgium, January 25, 1984; Aide-Memoire from
Government of Japan, June 6, 1984; Demarche from Ireland,
President European Communities, on behalf of the Member States
of the European Communities, December 20, 1984; Demarche from
the Commission of the European Communities and the Embassy
of Luxembourg, August 8, 1985; Demarche from the Member States
of the European Communities and the Commission of the European
Communities, August 30, 1985; Letter of his Excellency, Julian
Santamaria, Ambassador of Spain, on behalf of the Member States
of the European Communities, to the Honourable James A. Baker
III, United States Secretary of State, June 30, 1989; Demarche
from the United Kingdom, President European Communities, on
behalf of the Member States of the European Communities, July
22, 1992.

® January 30, 1986 letter of United States Secretary of State
George P. Shultz to the Governor of California. (Relevant text
of letter set out in Footnote 26, infra.)

10 California Revenue and Taxation Code § 25110.

6

can be imposed by the FTB without any provision for
judicial review.

United States Assistant Secretary of the Treasury for
Tax Policy J. Roger Mentz explained in testimony before
the United States Senate Committee on Finance that the
Federal Government had: “a number of serious policy
concerns with the California legislation” including:

In our view, a foreign corporation’s ability to avoid
being taxed by a state on its foreign income should
not be conditioned on payment of a substantial elec-
tion fee.”

ARGUMENT

I. THE APPLICATION OF WORLDWIDE COMBINED
REPORTING TO DOMESTIC SUBSIDIARIES OF
FOREIGN CORPORATIONS CREATES AN EN-
HANCED RISK OF MULTIPLE TAXATION.

The internationally accepted norm for allocating in-
come for tax purposes is arm’s length separate accounting
(“AL/SA”’). Under AL/SA, the income of each mem-
ber of a corporate group is computed by separate ac-
counting on the basis that each member of the group
must deal with the other as if it was a wholly sep-
arate entity owned by unrelated interests. This method
follows model conventions for the avoidance of double
taxation developed by the Organization for Economic
Cooperation and Development (“OECD”)” and the
United Nations, both of which expressly rejected formula

11 Hearings on S. 1974 before the Senate Committee on Finance
Subcommittee on Taxation and Debt Management, 99th Cong., 2d
Sess. (September 29, 1986), (statement of J. Roger Mentz, As-
sistant Secretary of the Treasury for Tax Policy).

12 The members of the OECD are: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United
Kingdom and United States of America.

oo.

7

apportionment in favor of arm’s length allocation."
Furthermore, Canada notes with satisfaction that the
United States Supreme Court has recognized there is a
“serious divergence in the taxing schemes adopted by
California and the foreign taxing authorities” and that the
method preferred by the United States Government and
adopted by “foreign taxing authorities is consistent with
accepted international practice.” ™*

The principles of AL/SA have been adopted by the na-
tions of the world in their double taxation treaties.> As
a result, a considerable degree of harmonization between

18 United Nations Model Double Taxation Convention Between
Developed and Developing Countries, arts. 5(8), 7(2), 9(1), U.N.
Doc. ST/WSA/102 (1980) ; Report of the OECD Comm. on Fiscal
Affairs, Model Double Taxation Convention on Income and on
Capital, arts. 5(7), 7(2), 9(1) (1977).

14 Container Corp., supra at 187.

15 The use of arm’s length separate accounting and the require-
ment of a permanent establishment are contained in all of the 58
bilateral income tax treaties to which Canada is currently a party,
including the Convention between Canada and the United States
of America with Respect to Taxes on Income and Capital signed
at Washington on September 26, 1980, 1984 C.T.S. 15, T.I.A.S. No.
11087.

The requirement of the use of AL/SA has been contained in
every tax treaty to which the United States has been a party since
the first such treaty, which was signed with France April 27,
1932. 164 LTS 211, TS 885, 49 Stat. 3145, Article IV.

All of the U.S. treaties for the prevention of double taxation
contain an absolute prohibition on U.S. taxation of the profits of
a foreign corporation that does not have a permanent establish-
ment in the U.S. Article VII of the United States-Canada Income
Tax Convention exemplifies this prohibition:

The business profits of a resident of a Contracting State shall
be taxable only in that state unless the resident carries on
business in the other Contracting State through a permanent
establishment situated therein. If the resident carries on, or
has carried on, business as aforesaid, the business profits of
the resident may be taxed in the other State but only on so
much of them as is attributable to that permanent establish-
ment.

8

their bilateral tax conventions has been achieved, to the
benefit of taxpayers and national governments. This
framework of understanding and cooperation on taxa-
tion matters has contributed to the significant growth of
trade and investment since World War II.

Applying WWCR, FTB considers separate foreign and
domestic corporations part of a multicorporate group as
one, and subjects all their worldwide income to tax as

| one “unitary” corporation, regardless of whether it is

taxable under the Internal Revenue Code or applicable
treaty, or has been attributed to and taxed in foreign
jurisdictions. The group’s combined income is appor-
tioned between California and the rest of the world on
the basis of an arbitrary formula composed of the ratio
of payroll, sales, and property of the group in California
compared to the world.

Canada notes that the United States Supreme Court
has acknowledged the double taxation that results from
the serious divergence between WWCR and the interna-
tional norm.’”® It is difficult to imagine a more “serious
divergence” from the international taxation framework
than WWCR. To Canada’s knowledge, of all the coun-
tries in the world and their political subdivisions, only
California and North Dakota apply WWCR to foreign
based multicorporate groups.’’ Double taxation occurs
because WWCR employs entirely different principles for
deciding where income is earned. The double taxation
produced can only be resolved if WWCR is required to
give way to AL/SA.*

16 Container Corp., supra at 187.

17 Montana applies WWCR only to domestic based multicorpo-
rate groups.

18 Any multiple taxation or undertaxation that occurs from any
differences in the allocation of income and expenses among tax
jurisdictions employing AL/SA, being those of inconsistent appli-
cations of the same principle, can be eliminated and resolved
through international negotiation and double taxation conventions.

9

Double taxation is also the consequence of the severe
distortions that ensue when diverse economic conditions
throughout the world are incorporated into the WWCR
formula.” WWCR assumes that a dollar spent on payroll
or property, or a dollar of sales made in one tax jurisdic-
tion produces roughly the same amount of taxable income
as a dollar so spent, or sale made, in another tax juris-
diction. Common sense and realities of the marketplace
defeat that assumption.

It would be equally challenging to present a more
extreme example of double taxation than the Petitioner
describes.” When FTB, through the use of WWCR,
combined the loss of Alcan with the income of Limited
and its non-U.S. subsidiaries, the FTB levied assessments
totalling $1,720,615.94 (U.S.).% Clearly income not
earned in California by Alcan was subjected to Cali-
fornia’s taxation. Obviously, that income was earned
outside of California’s taxing jurisdiction, and just as
plainly, subject to taxation where it was actually earned.

II. THE USE OF WWCR PREVENTS THE UNITED
STATES GOVERNMENT FROM SPEAKING WITH
ONE VOICE WHEN REGULATING COMMERCIAL
RELATIONS WITH FOREIGN GOVERNMENTS.

The use of WWCR contradicts the policy of the
United States Government. The amicus curiae brief of

19 State Taxation of Foreign Source Income: Hearings on H.R.
5076 before the House Committee on Ways and Means, 96th Cong.,
2d Sess. 7 (1980), (statement of Donald C. Lubick, Assistant
Secretary of the Treasury for Tax Policy).

20 Petition for Writ of Certiorari, 19-22.

21 Alean Aluminum Corporation v, Franchise Tax Board of the
State of California, No. B065648 (Court of Appeal of the State
of California, Second Appellate District, Division Three), un-
published opinion p. 2 (Nov. 11, 1992). Petition for Writ of
Certiorari, A2.

10

the United States filed below succinctly states the United
States Government’s position:

It is the position of the United States that Cali-
fornia’s worldwide unitary income allocation method
of taxation may not constitutionally be applied to
the taxpayer (plaintiff-appellant) without impairing
the ability of the United States to speak with one
voice in conducting and controlling foreign relations
and international commerce.”

As discussed above, the use of AL/SA has been required
by every tax treaty to which the United States has been
a party since the first such treaty signed with France on
April 27, 1932. The United States Senate has ratified
all of those treaties and the United States Congress in-
cluded that requirement in Internal Revenue Code
§ 482," the predecessor to which was first enacted in
the Revenue Act of 1928.

The disruption to the United States’ ability to speak
with one voice, which results from it and the rest of the
world having one international corporate taxation sys-

tem and California having another incompatible one, is
evident:

A failure to bring this development to a halt and
to eliminate the international incidence of unitary
taxation might lead the international community to
conclude that the United States has ceased to speak
with one voice and thus is no longer contributing to
the international tax order toward which the United

22 Brief Amicus Curiae of the United States in Support of Plain-
tiff and Appellant Alcan Aluminum Corporation, Alcan Aluminum
Corporation v. Franchise Tax Board of the State of California,
Court of Appeal of the State of California, Second Appellate Dis-
trict, p. 2, (April 1992).

28 26 U.S.C. § 482,

11

States, Germany and other nations have worked for
sO many years.

If left to stand, the decision of the California courts
below will affirm the impairment of the United States to
speak with one voice. Canada and other trading partners
of the United States would not be able to rely upon the
United States Government’s official declarations of na-
tional policy in the area of foreign commerce if such
policy were to be ultimately determined by a state court’s
interpretation of the “inaction” of Congress.

No approval of FTB’s use of WWCR can be inferred
from the fact that bilateral tax treaties in general, and
the tax treaties to whch Canada and the United States
are a party specifically, do not explicitly prohibit po-
litical subdivisions from using WWCR. In_Inter-
national Law, Sovereign States have the capacity to be-
come parties to treaties, not their political subdivisions,
be they provinces or states. Historically, bilateral conven-
tions have not set standards for the taxes of political sub-
divisions, because it has been considered that once a
treaty has been entered into, in conformity with an inter-
national norm, a political subdivision would not presume
to devise another method of taxing international income
earned outside its jurisdiction by members of multicorpo-
rate groups with no permanent establishment there. As
discussed above, such other methods occur nowhere out-
side of the two states of the United States.

The repeated diplomatic expressions of disapproval of
WWCR by the treaty partners of the United States con-
tradict any claim that their treaties with the United States

24 Memorandum to the United States Department of the Treas-
ury on the Issue of State Taxation by Worldwide Combination and
Formula Apportionment “Unitary Taxation,” Federal Republic of
Germany, Federal Ministry of Finance, p. 5, (Nov. 28, 1983).

25 Many of the bilateral tax treaties to which the United States
and Canada are a party predate the use of WWCR.

12

somehow “approve” of its use.** Numerous examples of
the official expressions of disapproval by Canada and
other trading partners of the United States are detailed
above. Most recently, the British Chancellor of the
Exchequer the Right Honourable Norman Lamont an-
nounced that the British Government will have to take
retaliatory measures in relation to United States-based
companies if there is not a satisfactory resolution of the
problems caused by the FTB’s use of WWCR by the end
of 1993.”

Canada, like the other main trading partners of the
United States, questions the utility and effectiveness of
double taxatiom conventions with the United States when
the application of WWCR by a few states, such as Cali-
fornia, clearly frustrates the spirit of the convention and
impairs the bemefits accruing to Canadian nationals con-
ducting commercial activities in the territory of the
United States. Most recently, Canada and other coun-

26 United States Secretary of State George P. Shultz in his
January 30, 1986 letter to the Governor of California summarized
the international expressions of offense over the use of WWCR:

The Department of State has received diplomatic notes com-
plaining about state use of the worldwide unitary method of
taxation from virtually every developed country in the world.
The unitary issue has been partially responsible for stalling
some bilateral tax treaty negotiations.

Most seriously, the U.K. Parliament, in July, 1985, unani-
mously adopted anti-unitary retaliatory legislation permitting
the U.K. government to deny, on a unilateral basis and retro-
active to April, 1985, a very valuable benefit of the U.S.-U.K.
treaty for U.S. corporations operating in worldwide unitary
states.

Secretary of State Shultz was referring to Section 54 of and
Schedule 18 to the Finance Act of 1985—now reenacted as Section
812-815 of the Income and Corporations Taxes Act 1988.

27 House of Commons Official Report, Parliamentary Debates
(Hansard), Column 528 of the Official Record of 18 May, 1993,
Vol, 224, No. 178,

13

tries have pointed out that determination of the issue
presented here will influence their future bilateral treaty
negotiations with the United States.”*

CONCLUSION

Canada is concerned about FTB’s continued use of
WWCR because, inter alia: Canada-based multicorporate
groups are adversely affected; double taxation of their
income results; WWCR conflicts with the international
framework established to avoid such double taxation;
and the ability to rely upon the United States Govern-
ment to speak with one voice for the nation is put in
doubt. Numerous other countries have expressed these
same concerns.

It behooves this Court as the appropriate agency of the
United States to resolve as it can now do the legal issue
of the validity of the application of WWCR to domestic
corporations with foreign parents. Canada notes that all
the elements that this Court has specified as necessary to
determine the issue are present in this case: ( 1) the seri-
ous divergence between WWCR and the established tax
framework presents an automatic asymmetry; (2) the in-
cidence of the tax falls on a domestic corporation owned
by a Canada parent corporation; and (3) the concern
over FTB’s use of WWCR is international, not local.

In addition, this case presents a clear example of the
double taxation that inherently results from the applica-
tion of WWCR. There also can be no doubt that United
States foreign policy is impaired. The amicus curiae briefs
Submitted by the United States at every level below in

28 Amici curiae brief of the twelve Member States of the Euro-
pean Communities: Belgium, Denmark, France, Federal Republic
of Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, and the United Kingdom; and the Governments
of Australia, Austria, Canada, Finland, Japan, Norway, Sweden
and Switzerland, filed in support of Petitioner, p. 2., Barclays Bank
PLC v. Franchise Tax Board, No. 92-1384 (1998).

14

this case and Barclays Bank, PLC v. Franchise Tax Board,
No. 92-1384 confirm it. The major trading partners
of the United States have most recently expressed, in
briefs filed with this Court, their concern over the effect
of that impairment upon their future economic and com-
mercial relations with the United States.”

The Government of Canada asks that Petitioner’s Peti-
tion for a Writ of Certiorari be granted.

Respectfully submitted,

F. EUGENE WIRWAHN
Chestnut Oaks

Route One, Box 176B

Aldie, Virginia 22001

(708) 327-4871

Counsel for the Government of

Dated: June 2, 1993 Canada as Amicus Curiae ,

29 See, for example: amicus curiae brief of the Government of
the United Kingdom and amici curiae brief of the twelve Member
States of the European Communities: Belgium, Denmark, France,
Federal Republic of Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, and the United Kingdom; and
the Governments of Australia, Austria, Canada, Finland, Japan,
Norway, Sweden and Switzerland, filed in support of Petitioner in
Barclays Bank PLC v. Franchise Tax Board, No. 92-1384 (1993).

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_2433%3A3. Public record. Not legal advice.