Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512 U.S. 298, 22 (1994)

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Cite as: 512 U. S. 298 (1994)

Opinion of the Court

approach), id., at 188-189, "could not eliminate the risk of double taxation" and might in some cases enhance that risk. Id., at 191.18 We underscored that "even though most nations have adopted the arm's-length approach in its general outlines, the precise rules under which they reallocate income among affiliated corporations often differ substantially, and whenever that difference exists, the possibility of double taxation also exists." Ibid. (emphasis added); see also id., at 192 ("California would have trouble avoiding multiple taxation even if it adopted the 'arm's-length' approach . . . .").

These considerations are not dispositively diminished when California's tax is applied to the components of foreign, as opposed to domestic, multinationals. Multiple taxation of such entities because of California's scheme is not "inevitable"; the existence vel non of actual multiple taxation of income remains, as in Container Corp., dependent "on the facts of the individual case." Id., at 188. And if, as we have held, adoption of a separate accounting system does not dispositively lessen the risk of multiple taxation of the income earned by foreign affiliates of domestic-owned corporations, we see no reason why it would do so in respect of the income earned by foreign affiliates of foreign-owned corporations. We refused in Container Corp. "to require California to give up one allocation method that sometimes results in double taxation in favor of another allocation method that also sometimes results in double taxation." Id., at 193. The

18 The Court's decision in Container Corp. effectively modified, for purposes of income taxation, the Commerce Clause multiple taxation inquiry described in Japan Line, Ltd. v. County of Los Angeles, 441 U. S. 434 (1979) (holding unconstitutional application of California's ad valorem property tax to cargo containers based in Japan and used exclusively in foreign commerce). In Japan Line, confronting a property tax on containers used as "instrumentalities of [foreign] commerce," not an income tax on companies, we said that a state tax is incompatible with the Commerce Clause if it "creates a substantial risk of international multiple taxation." Id., at 451.

319

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