American Air Liquide, Inc. and Subsidiaries - Page 3

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               We must decide whether royalties received by petitioner, a             
          domestic corporation, from its foreign parent should be                     
          classified as section 904(d)(1)(A) passive income or as section             
          904(d)(1)(I) general limitation income for purposes of                      
          determining petitioner’s foreign tax credit.  We hold that they             
          are section 904(d)(1)(A) passive income.                                    
               Petitioner’s principal place of business was located in                
          Walnut Creek, California, when the petition was filed.  American            
          Air Liquide, Inc. (AAL), is the common parent of a group of                 
          corporations that filed consolidated returns in the years in                
          issue.  Liquid Air Corp. (LAC) is a member of AAL’s affiliated              
               L’Air Liquide, S.A. (L’Air), is a French corporation that is           
          the ultimate parent of petitioner.  L’Air produces, sells, and              
          distributes industrial gases, related equipment and services, and           
          welding products throughout the world through its own operations            
          in France and through its French and non-French subsidiaries.               
               In 1986, AAL acquired the LAC research facilities and rights           
          to all technical information developed, or being developed, by              
          LAC.  Under various license agreements among AAL, LAC, and L’Air,           
          AAL and LAC received royalties of $4,775,000, $5 million, and               
          $4,800,000 from L’Air in 1989, 1990, and 1991, respectively.  The           
          royalties were paid by L’Air for nonexclusive, irrevocable, and             

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