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Co. was in the active conduct of a trade or business, and
qualified for WHTC treatment.
In Kewanee Oil Co. v. Commissioner, 62 T.C. 728, 737-738
(1974), we described as follows the essential thrust of the
foregoing cases and the significance of “active conduct of a
trade or business”:
Although the statutory history of the Western
Hemisphere trade corporation provisions is perhaps less
exhaustive than might be desired, we think it nonetheless
discloses a clearly articulated legislative purpose upon the
basis of which Congress enacted the provisions in question.
The critical policy which emerges in the Western Hemisphere
provisions, and as previously expressed in the Revenue Acts
of 1921 and 1940, was Congress’ desire to offset through a
tax preference the competitive disadvantage suffered by
certain American corporations abroad on account of the less
onerous taxes to which their non-American competitors were
subject. This encouragement was not, however, without
limitations. By means of the source rule and the active
conduct requirement Congress quite apparently sought to
distinguish, however bluntly, between those corporations
which themselves engaged in business activity outside the
United States in direct competition with foreign
corporations and those which merely invested in others’
businesses abroad or otherwise did not engage in directly
competitive activity. Our understanding in this respect is
not different from that expressed by the few courts which
have had occasion to address themselves to the language of
this portion of the statute. Cf. Frank v. International
Canadian Corporation, 308 F.2d 520, 525 (C.A. 9);13 Towne
Securities Corporation v. Rea Forhan Pedrick, 44 A.F.T.R.
1258, 1259 (S.D. N.Y.); Babson Bros. Export Co., 22 T.C.M.
677, 683-684. It follows that when the “active conduct”
requirement is read in the context from which it arose,
namely the threat of foreign competition, one might well
conclude that in passing the Western Hemisphere provisions
Congress intended to grant relief to United States business
activity in the Americas only to the extent that the
beneficiary corporation conducted active business operations
abroad vulnerable to the competitive threat posed by the
tax-advantaged corporation of the other countries.14
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