
    A. P. GREEN EXPORT COMPANY v. THE UNITED STATES
    [No. 126-59.
    Decided December 1, 1960]
    
      
      Henry 0. Lowenhaupt for the plaintiff. Lowenhaupt, Mattingly, Ohasnof, Freeman <& Holland and Willson, Cunningham, McClellan & Gunn were on the brief.
    
      Eugene Emerson, with whom was Assistant Attorney General Charles K. Bice, for the defendant. James P. Garland and Lyle M. Turner were on the brief.
   Jones, Chief Judge,

delivered the opinion of the court:

This is a suit for the refund of Federal income taxes for the years 1952 and .1953. Plaintiff claims that during this period it operated as a Western Hemisphere trade corporation as defined in section 109 of the Internal Revenue Code of 1939, amended by the Revenue Act of 1942, 56 Stat. 798, 838, and qualified for the special tax credit allowed such corporations under section 26 of the Code.

Section 109 (a) and (b) provides as follows:

Sec. 109. Western hemisphere trade corporations.
For the purposes of this chapter the term “western hemisphere trade corporation” means a domestic corporation all of whose business is done in any country or countries in North, Central, or South America, or in the West Indies, or in Newfoundland and which satisfies the following conditions:
(a) If 95 per centum or more of the gross income of such domestic corporation for the three-year period immediately preceding the close of the taxable year (or for such part of such period during which the corporation was in existence) was derived from sources other than sources within the United States; and
(b) If 90 per centum or more of its gross income for such period or such part thereof was derived from the active conduct of a trade or business.

Section 26 of the Code, 53 Stat. 18, provides credits for corporations as follows:

In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax—
«j* *i» »!» $
(1) * * * In the case of a western hemisphere trade corporation (as defined in section 109)—
i¡: ili * * *
(2) * * * In the case of a taxable year beginning after March 31, 1951, and before April 1, 1954, an amount equal to 27 per centum of its normal-tax net income computed without regard to the credit provided in this subsection. [As added 64 Stat. 906, 920, as amended 65 Stat. 452, 470.]

The problem presented to this court centers upon the sources of plaintiff’s income for the taxable years. Both parties agree that section 119 of the Code is applicable to this determination.

Sec. 119. Income prom sources within united states.
‡ $ «I* *!•
(e) * * * Gains, profits and income derived from the purchase of personal property within and its sale without the United States * * * shall be treated as derived entirely from sources within the country in which sold * * *. [Emphasis supplied.]

We are, thus, bound by the statute to determine specifically within which countries plaintiff’s sales were made.

Detailed facts are set out in the findings which appear hereafter. We shall restate them only insofar as it facilitates consideration of the issues. Plaintiff is a wholly owned subsidiary of the A. P. Green Fire Brick Company, Inc., and was formed for the specific purpose of operating as a Western Hemisphere trade corporation. Its sole business consisted of buying fire brick and other refractory products from the parent company and selling them either to A. P. Green Fire Brick Company, Ltd., a fully owned Canadian subsidiary of the parent company, or to various unaffiliated customers in Central or South America. The plaintiff maintained no sales force or business establishment outside the United States. As orders or inquiries came in, plaintiff would respond with, an offer describing the goods specifically. The goods were priced c.i.f. port of entry or occasionally f.o.b. factory, Mexico, Missouri, with all delivery costs figured in the price quotations. Plaintiff carefully noted in each offer:

This quotation shall be binding upon A. P. Green Export Company upon acceptance by you and the placing of that acceptance in the mails.
Title to these goods and responsibility for their shipment and safe carriage shall be in A. P. Green Export Company until their delivery to the customer at destination.

In due course these offers were accepted and returned by mail. Shipment was by public carrier on rail and water often under a straight bill of lading with the buyer named as consignee. In most cases freight charges were prepaid by the plaintiff. Insurance was purchased by the plaintiff for his benefit but the policy was negotiable and covered the goods 15 to 30 days beyond their arrival at the final port. Documents were surrendered against acceptance after delivery; payment was by 30-day sight drafts. Frequently, these drafts were discounted by plaintiff’s bank before their acceptance, always with full recourse to the plaintiff. Standard commercial practices were followed throughout.

I. LEGISLATIVE HISTORY

The Congress has limited the tax credit of section 109 to corporations 90 percent of whose income is “derived from the active conduct of a trade or business.” Although it would appear that “trade or business” plainly comprehends a commercial export enterprise, the Government contends that “trade or business” under section 109 must involve significant investment abroad; that a simple export company such as the plaintiff with no business establishment outside the United States, lies beyond the statutory purview. As basis for this assertion, the Government cites a single example from the report of the Senate Committee on Finance which submitted section 109 as an amendment to the Internal Revenue Code, 56 Stat. 838. The example deals with a corporation engaged in mining activities in South America. Sen. Eep. No. 1631, 77th Cong., 2d Sess., Ill (1942). Bold definitional lines cannot be drawn with the meager legislative history available. We do not feel, however, that the effect of the statute should be severely restricted to the illustration used in the Committee Report since it in no way appears that the example was used for that purpose. An explanatory tale should not wag a statutory dog.

The announced legislative purpose of section 109 was to encourage domestic corporations to engage in foreign commerce. European countries had granted tax concessions to their nationals engaged in Western Hemisphere trade. The Congress was thus moved to grant similar tax credits to our domestic corporations thereby permitting them to compete on equal footing. Without such tax assistance Western Hemisphere trade would in many instances not be profitable enough to pursue. American Food Products Corp. v. Commissioner, 28 T.C. 14. This was not an isolated legislative adventure on the part of the Congress, but another step in a long history of special tax treatment for income received by domestic corporations from sources outside the United States. Such treatment began with sections 222 and 238 of the Revenue Act of 1918, 40 Stat. 1057, providing credits for foreign income taxes paid by domestic corporations. Subsequently, section 152 of the 1939 Internal Revenue Code, 53 Stat. 880, 881, was enacted providing tax benefits for “Pan-American trade corporations” which were domestic corporations engaged in the “active conduct of a trade or business in Central or South America.” It was required of these corporations that they derive their income “from sources other than royalties, rents, dividends, interest, annuities, and gains from the sale or exchange of stock or securities.” It is apparent that the Congress wrote this section with great specificity yet it imposed no requirement of foreign investment. In 1942, this section was deleted from the Code and section 109 was added. 56 Stat. 838. Tlie prior Pan-American limitations were relaxed to include all countries in the Western Hemisphere other than the United States. New language used made section 109 coextensive in scope with section 727(g) (1) and (2) which exempted certain corporations from excess profits taxes. We are satisfied that the Congress did not intend to limit the effect of section 109 to railroads, mines, public utilities, or other businesses requiring foreign investment.

We note as of interest that the Congress reenacted the Western Hemisphere trade corporation provisions as section 921 of the 1954 Internal Revenue Code, 68A Stat. 290, and the reports and hearings indicate that the Congress knew that domestic export companies were adapting their operations to qualify as Western Hemisphere trade corporations. The facts indicate that the Congress believed these domestic corporations could qualify for the tax credit without substantial foreign investment. Congressional afterthoughts are not controlling; neither may they be entirely disregarded, any more than executive interpretations may be disregarded. United States v. Freeman, 3 How. 556; Sioux Tribe of Indians v. United States, 316 U.S. 317; United States v. Stafoff, 260 U.S. 477; First Nat. Bank v. Missouri, 263 U.S. 640; see also The Equitable Life Assurance Society of the United States v. United States, 149 Ct. Cl. 316, cert. denied 364 U.S. 829, concurring opinion of Judge Littleton.

We reject the Government’s premise for it is our belief that “significant foreign investment” may not reasonably be implied in the term “trade or business” of section 109 of the Code. Apart from this contention the Government does not further question that an active commercial export enterprise is “trade or business” under this section. These conclusions presage our finding that an export business may be eligible for the tax benefits accorded Western Hemisphere trade corporations.

II. PLACE OF SALE

The place of sale is a conclusion which follows the application of the proper test to a series of commercial transactions. The choice of the proper test becomes very difficult when the effects of the determination sought go beyond the traditional area of the law of sales.

The title-passage test as determinative of where a sale has occurred, and, by reference to section 119, where plaintiff’s income was derived, is open to serious criticism, for it causes the incidence of the United States tax to depend upon the vagaries of the law of sales. The time and place of passage of title to ascertained goods is subject to the consensual arrangements of the parties. Williston on Sales, sec. 259, 2d ed.; cf. Uniform Sales Act, sec. 18. This all-important consent is most frequently expressed by the parties, but if not it is determined at the time of controversy by a number of presumptions set up by the law of sales. These fairly complex rules regarding passage of title are extremely important in determining such questions as the risk of loss of goods in transit, or the rights of successive creditors, but have little or no bearing on the question of where income is earned and how it should be apportioned among the various countries in which business is conducted. See American Express Co. v. Iowa, 196 U.S. 133; Superior Oil Co. v. Mississippi, 280 U.S. 390. The title-passage test has been further criticized as imposing inequitable tax burdens on taxpayers engaged in substantially similar transactions, such as upon exporters, some of whose customers require that property in the goods passes in the United States. See Hearings before the House Committee on Ways and Means on Forty Topics Pertaining to the General Revision of the Internal Revenue Code, 83d Cong., 1st Sess., Part II, 1455-1484 (1953).

Whatever its weaknesses, however, the title-passage test as determinative of place of sale and source of income has been overwhelmingly adopted by the courts in recent decisions. Compania General de Tabacos de Filipinas v. Collector, 279 U.S. 306; East Coast Oil Co. v. Commissioner, 31 B.T.A. 558, affirmed, 85 F. 2d 322, cert. denied, 299 U.S. 608; Hazleton Corp. v. Commissioner, 36 B.T.A. 908; Ronrico Corp. v. Commissioner, 44 B.T.A. 1130; United States v. Balanovski, 236 F. 2d 298, reversing in part, 131 F. Supp. 898; American Food Products Corp. v. Commissioner, 28 T.C. 14. We believe no other suitable test providing an adequate degree of certainty for the taxpayer has been proposed. The use of vague “contacts” or “substance of the transaction” criteria would make it more difficult for corporations engaged in Western Hemisphere trade to plan their operations so as to receive the deductions granted them only if they derive their income from sources outside the United States. Tests based upon the destination of the property sold or on the locus of the selling activity are equally vulnerable to the charge of unfair discrimination. See United States v. Balanovski, 236 F. 2d 298 at 306.

If then the passage of title does control the place of sale and the source of income, logic demands that we specify the place where title to the goods passed. It is a black letter rule of the law of sales that title to specific goods passes from the seller to the buyer in any manner and on any condition explicitly agreed on by the parties. Amtorg Trading Corp. v. Higgins, 150 F. 2d 536; United States v. Balanovski, supra; Williston on Sales, sec. 259, rev. ed. (1948); cf. Uniform Commercial Code, sec. 2-401. Examination of the sales contracts before us shows that the parties expressed their intentions as follows:

Title to these goods and the responsibility for their shipment and safe carriage shall be in the A. P. Green Export Company until their delivery to the customer at destination.

Such a clear statement, undoubtedly binding upon the parties in an ordinary sales or contract dispute, would seem to end our inquiry into the intention of the parties. But the Government urges that the terms of shipment raise presumptions' that the parties intended to pass title in the United States contrary to their stated intentions, and that we must acknowledge the effect of these presumptions. We find no merit in this contention. It is true that in some instances the shipping terms, particularly the c.i.f. (cost, insurance, and freight) transactions, indicate presumptively that title passed at the place of shipment. Ronrico Corp. v. Commissioner, supra; East Coast Oil Co. v. Commissioner, supra; Williston on Sales, supra, sec. 280c. But the authorities are agreed that these presumptions are useful in ascertaining intention only if no express intention of the parties appears. See Williston on Sales, supra, sec. 261, et seq., and cases cited. The Government does not suggest the expressions in the contract were fraudulent. It does maintain that we must disregard the stated intentions of the parties in determining where title passed because the ultimate motive for these statements was the plaintiff’s desire to avoid a tax.

We believe the Government has erred in failing to distinguish two separate legal consequences flowing from the same act of expression by the parties, the consequences being the passage of title and the avoidance of a tax. Title passes in a sales transaction as a result of the mutual arrangement of the buyer and the seller, whatever the reason or motivation for the consent. It would be an unjustified distortion of this law for us to disregard the parties’ stated intention to pass title outside the United States because they were principally motivated by a desire to avoid a tax. This is not to say that under the tax law, in an atmosphere of tax avoidance, we may not find that the passage of title no longer governs the place of sale and the source of income. The next section of our opinion covers this problem. It is perfectly clear, however, that the parties intended to pass title to the goods outside the United States; this being determinative, we find that title to the goods did pass outside the United States.

in. TAX AVOIDANCE

We now come to the problem of tax avoidance to which we have just referred. The Government urges that we examine the transactions here in the penetrating light of Gregory v. Helvering, 293 U.S. 465, for it claims that plaintiff’s principal purpose in organizing and operating the export corporation was tax avoidance.

Organizing a Western Hemisphere trade corporation does not constitute tax avoidance and the Commissioner of Internal Bevenue has so ruled, as follows:

The creation of a new domestic corporation to carry on the business in the Western Hemisphere (other than in the United States) of an existing domestic corporation does not constitute tax avoidance within the meaning of Section 129 of the Internal Revenue Code, even though the new corporation was created for the principal purpose of gaining the tax benefits provided by the first exception in section 115(b) of the Code relating to exception from surtax in the case of Western Hemisphere trade corporations and by section 727 (g) of the Code, relating to certain domestic corporations which are exempt from excess profits tax. [I.T. 3757, 1945 Cum. Bull. 200.]

Neither the motives, occasion for, nor the time of the organization of the plaintiff corporation affects its eligibility for tax relief. The Code provisions themselves have created this new business norm, a norm motivated entirely by a tax result.

The questions concerning the methods of operating the export corporation are not so easily answered. The facts show that the plaintiff delayed the passage of title with at least one eye on the Revenue Code. See finding 25. May we, therefore, depart from the title-passage test in determining the place of sale and source of plaintiff’s income? The defendant says we must and submits in support a ruling by the Commissioner which states:

Where the sales transaction is arranged for the primary purpose of tax avoidance, the foregoing rules [passage of title test] will not be applied. In such case, all factors of the transaction such as negotiations, execution of the agreement, location of the property and place of payment will be, considered, and the sale will be treated as having been consummated at the place where the substance of the sale occurred. [G.C.M. 25131, 1947-2 Cum. Bull. 85.]

The defendant also relies on United States v. Balanovski, 131 F. Supp. 898, reversed in part, 236 F. 2d 298, cert. denied, 352 U.S. 968. At first glance the Balanovski case seems to give little support to the defendant’s position. There, the facts showed that goods were purchased in the United States and sold to the Argentine Government. In determining the source of income of the Argentine broker, Balanovski, the district court applied a “substance of the transaction” test and determined that Balanovski had not earned income in the United States. The Court of Appeals for the Second Circuit reversed the district court on the exact point of where the sales bad taken place. It rejected the “substance of the transaction” test and rested its decision on the traditional ground of looking to the point of passage of title.

But the final passage of Judge Clark’s opinion in Bala-novshi, swpra, is notable:

Of course this test [title-passage] may present problems, as where passage of title is formally delayed to avoid taxes. Hence it is not necessary, nor is it desirable, to require rigid adherence to this test under all circumstances.

The Government concludes from this that in instances where passage of title is formally delayed to avoid taxes the court would feel free to look beyond the question of where title passed. Furthermore, it is suggested that the court tacitly accepted a “substance of the transaction” criterion as only by examining the indicia of substance would it be possible to decide whether passage of title was delayed merely to avoid taxes.

Along with this we must consider the statement of Judge Learned Hand in the Gregory case that “a transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury ; there is not even a patriotic duty to increase one’s taxes.” 69 F. 2d at 810, citing United States v. Isham, 17 Wall. 496, 506; Bullen v. Wisconsin, 240 U.S. 625; quoted with approval, Gregory v. Helvering, 293 U.S. 465; see also Superior Oil Co. v. Mississippi, 280 U.S. 390. It is undeniable that this is a doctrine essential to industry and commerce in a society like our own in which as far as possible business is always shaped to the form best suited to keep down taxes. Commissioner v. National Carbide Corp., 167 F. 2d 304, affirmed, 336 U.S. 422. The question always is whether the transaction under scrutiny is in fact what it appears to be in form. A corporate reorganization may be illusory; a contract of sale may be intended only to deceive others. In such cases the transaction as a whole is different from its appearance. It is the intent that controls, but the intent which counts is one which contradicts the apparent transaction, not the intent to escape taxation. Chisholm v. Commissioner, 79 F. 2d 14.

Why the parties in the present case wished to make the sales as they did is one thing, but that is irrelevant under the Gregory case so long as the consummated agreements were no different than they purported to be, and provided the retention of title was not a sham but had a commercial purpose apart from the expected tax consequences. Granite Trust Co. v. United States, 238 F. 2d 670; Kocin v. United States, 187 F. 2d 707; Weller v. Commissioner, 270 F. 2d 294; Knetsch v. United States, 364 U.S. 361; cf. Stanton v. Commissioner, 34 T.C. 1; Kellogg Co. v. United States, 132 Ct. Cl. 507, cert. denied 350 U.S. 903. Plaintiff’s operations meet these tests. The facts show that the parties did intend title to pass outside the United States. There was no sham. Be-taining title until delivery served a legitimate business purpose apart from the expected tax consequences. A moment’s contemplation of the current headline disputes among countries all over the world underscores the prudence of exporters who retain title to goods until delivery. A sudden trade embargo, a seizure or a nationalization of an industry, a paralyzing nationwide strike — under these circumstances the exporter who retains title diverts his shipments with little difficulty to friendlier ports and markets. Of additional significance is the fact that retaining title permits the shipper to insure his goods in the United States. If loss occurs he can recover directly and in dollars with the obvious benefits of avoiding circuitous litigation and the fluctuations of foreign currency.

On the other hand, we recognize that plaintiff would 'have received certain other benefits by passing title to his goods in the United States. Plaintiff was faced with a choice of two legitimate courses of conduct, either of which would be commercially sound and justifiable. We are not prepared to say that in this situation plaintiff was bound to choose that course which would best pay the Treasury.

Our conclusion from all of the above is that the sales were made outside the United States. However, our conclusion would be no different if we followed the defendant’s suggestion and went beyond the passage of title to the other elements “of substance” in the transactions. Orders were solicited outside the United States. In every case, the contract of sale was made outside the United States; the destinations of the goods and the competitive markets for the goods were outside the United States. In most cases, the place of payment was outside the United States.

Accordingly, the plaintiff is entitled to recover its back taxes for the years 1952 and 1953, together with interest as provided by law. Judgment will be entered to that effect.

The exact amount of recovery will be determined pursuant to Rule 38 (c) of the Rules of this court.

It is so ordered.

Durfee, Judge; Laramore, Judge; and MaddeN, Judge, concur.

Whitaker, Judge, took no part in the consideration and decision of this case.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner William E. Day, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiff is a corporation duly organized on November 24, 1951, and since that date existing under and by virtue of the laws of the State of Missouri. Its office and principal place of business are at 1018 East Breckenridge Street, in the City of Mexico, County of Audrain, and State of Missouri.

2. This is an action arising under the Internal Revenue Laws of the United States, and is brought pursuant to section 1491 of the Judicial Code. The plaintiff seeks to recover from the United States the sum of fifty-seven thousand eight hundred eighty-seven dollars and nine cents ($57,887.09), together with interest thereon as provided by law, which sum it claims as overpayments of Federal income taxes for the calendar years 1952 and 1953.

3. Plaintiff is the owner of the claims for refund of 1952 and 1953 income taxes prosecuted in this cause.

4. Since the incorporation of plaintiff on November 24, 1951, all the outstanding shares of stock of plaintiff have been owned by A. P. Green Fire Brick Company, a Missouri corporation, engaged in the business of mining refractory clay, manufacturing refractory products, and selling the same.

5. Since plaintiff’s incorporation, its only business and activity have been purchasing refractory products from A. P. Green Fire Brick Company and selling such products. All of the products purchased by plaintiff were purchased by it within the United States, that is, at Mexico, Audrain County, Missouri.

6. Plaintiff has never derived any income or revenue from any source other than the active conduct of the trade or business of buying and selling refractory products.

7. On or about March 12, 1953, plaintiff filed with the Deputy Director of Internal Kevenue at St. Louis, Missouri, its income tax return disclosing net income in the amount of $142,445.70 for the calendar year 1952, and paid to the said Deputy Director of Internal Kevenue the sum of $19,428.95. In the computation of net income, Missouri income tax in the amount of $948.21 was inadvertently and erroneously deducted. The return was thereafter audited by an agent of the Commissioner of Internal Kevenue thereunto duly authorized, and, upon that audit, Missouri income tax in the aforesaid amount was disallowed as a deduction. The agent further reallocated income and deductions between plaintiff and the A. P. Green Fire Brick Company, and pursuant to section 45 of the Internal Kevenue Code of 1939 (section 482, I.K.C. 1954) allocated to plaintiff total net income for normal tax computation in the amount of $66,-317.97 and, accordingly, found overassessments against plaintiff in the amount of $7,649.81. Plaintiff’s net income for the year 1952 was $66,317.97. In the computation of the overassessment and tax due on that income, the agent did not allow any deduction or credit to plaintiff as a “Western Hemisphere trade corporation” under section 26 (i) of the Internal Revenue Code of 1939 or section 922 of the Internal Revenue Code of 1954.

8. After the payment of $19,428.95, as aforesaid, plaintiff, on or about June 3, 1953, paid to the Director the further sum of $19,428.95, and on or about September 10, 1953, the further sum of $4,857.24, and thereafter on or about December 14,1953, the further sum of $4,857.24, making in all the sum of $48,572.38, the amount shown on the return to be due for the year 1952. Thereafter, on or about March 12, 1958, there was refunded to plaintiff on account of the income tax for the year 1952 the principal sum of $7,649.81, the overassessment found as above related.

9. On or about September 10, 1958, plaintiff duly filed with the Director of Internal Revenue at St. Louis, Missouri, its claim for refund, claiming to be entitled to receive refund of income taxes for the year 1952 in the amount of $21,248.27 upon the ground that plaintiff was entitled to credit as a Western Hemisphere trade corporation.

10. The claim for refund was filed within the time allowed by law. Prior to September 10, 1958, by agreement, duly made between plaintiff and the Commissioner of Internal Revenue, the time within which the claim might legally be filed had been extended to a date later than September 10, 1958.

11. Notwithstanding that more than six months passed since the filing thereof, the claim for refund was not and has not been allowed.

12. On or about March 10, 1954, plaintiff filed with the Deputy Director of Internal Revenue at St. Louis, Missouri, its income tax return disclosing net income in the amount of $241,760.49 for the calendar year 1953, and paid to the Deputy Director of Internal Revenue the sum of $40,684.92. In the computation of net income, Missouri income tax in the amount of $1,570.57 was inadvertently and erroneously deducted. The return was thereafter audited by an agent of the Commissioner of Internal Revenue thereunto duly authorized, and upon that audit Missouri income tax in that amount was disallowed as a deduction. The agent further reallocated income and deductions between plaintiff and the A. P. Green Fire Brick Company, and pursuant to section 45 of the Internal Revenue Code of 1939 (section 482, I.R.C. 1954) allocated to plaintiff total net income in the amount of $114,353.36, and accordingly found overassessment against plaintiff in the amount of $11,724.93. Plaintiff’s net income for the year 1953 was $114,353.36. In the computation of the overassessment and tax due on that income, the agent did not allow any credit to plaintiff as a “Western Hemisphere trade corporation” under section 26 (i) of the Internal Revenue Code of 1939 or section 922 of the Internal Revenue Code of 1954.

13. After the payment of $40,684.92, as aforesaid, plaintiff, on or about June 14,1954, paid to the Director the further sum of $36,960.13, and on or about September 6, 1954, the further sum of $4,313.62, and thereafter on or about September 8, 1954, the further sum of $4,313.62, making in all the sum of $86,272.28, the amount shown on the return to be due. Thereafter, on or about March 12, 1958, there was refunded to plaintiff on account of the income tax for the year 1953, the principal sum of $11,724.93, the overassessment found as above related.

14. On or about September 10, 1958, plaintiff duly filed with the Deputy Director of Internal Revenue at St. Louis, Missouri, its claim for refund, claiming to be entitled to receive refund of income taxes for the year 1953 in the amount of $36,638.82 upon the ground that plaintiff was entitled to credit as a Western Hemisphere trade corporation.

15. The claim for refund was filed within the time allowed by law. Prior to September 10, 1958, by agreement duly made between plaintiff and the Commissioner of Internal Revenue, the time within which the claim might legally be filed had been extended to a date later than September 10, 1958.

16. Notwithstanding that more than six months passed since the filing thereof, the claim for refund was not and has not been allowed.

17. Plaintiff was formed for the specific purpose of operating as a Western Hemisphere trade corporation to avail itself of the tax and other benefits accorded such a corporation. It commenced business early in 1952, and during the year 1951 had no transactions or income.

18. Plaintiff kept its books and records and filed its income tax returns for the years 1952 and 1953 upon the accrual basis.

19. Following a decision on August 17,1951, of the Board of Directors of A. P. Green Fire Brick Company to organize a wholly-owned subsidiary under The Western Hemisphere Trade Corporation Act, Orville H. Bead was assigned the task of establishing the methods of operation for the plaintiff, A.P. Green Export Company. Mr. Bead was in charge of export sales throughout the world for the A. P. Green Fire Brick Company; and, during the years 1952 and 1953, he was also sales manager for A. P. Green Export Company. Mr. Bead was employed and paid by A. P. Green Fire Brick Company. Plaintiff carried no employees on its payroll in 1952 and 1953. The A. P. Green Fire Brick Company charged plaintiff for work which its employees performed for plaintiff by means of a service charge. In late 1951 and early 1952, Mr. Bead made various trips to Canada and at the conclusion executed an agreement between plaintiff and A. P. Green Fire Brick Company, Ltd., (hereinafter called’ “Limited”), a wholly-owned subsidiary corporation of A. P. Green Fire Brick Company, setting forth the terms and conditions under which future Canadian sales would be conducted. The agreement was signed at Winnipeg, Canada.

20. The agreement provided that from and after February 1,1952, Limited agreed to purchase from plaintiff and from no other source refractory products for use or resale and plaintiff agreed to sell to Limited all of its requirements; the agreement provided a pricing formula for use on all Canadian sales; and the agreement provided that the products involved were those products manufactured or sold by A. P. Green Fire Brick Company in the ordinary course of its business. The agreement further provided that the requirements of Limited would be deemed to include its own requirements for use and resale as well as the requirements of every other person in the Dominion of Canada who would order such products from Limited; that all products sold pursuant to the agreement were to be shipped by plaintiff to or upon the order of Limited; and that title to such products and responsibility for their shipment and safe carriage would be in plaintiff until their delivery in the Dominion of Canada to the ultimate consumer.

21. In 1952 and 1953, about 50 percent of plaintiff’s total sales were made to Limited. Such sales were originated in Canada principally by salesmen of Limited. Plaintiff did not have employees operating in Canada nor did it have warehousing facilities in Canada other than those facilities furnished by Limited. Mr. Orville H. Bead visited customers in Canada and there solicited business on behalf of Limited. Mr. Bead was interested in promoting the Export Company business in the Western Hemisphere; he was also in charge of export sales in the rest of the world for the A. P. Green Fire Brick Company; and where there was any question as to whether an order was an Export Company order or a Fire Brick Company order he would make the decision. However, all sales to the ultimate consumer in Canada were made by the Limited Company whose offices are in a suburb of Toronto, Ontario, Canada.

22. All Canadian orders for goods were shipped by plaintiff on orders from Limited. Plaintiff, accordingly, made its sales directly to Limited. Limited’s salesmen solicited orders from customers in Canada and sent them to its home office in Toronto. Limited would then place its order with the plaintiff company. In those cases where a Canadian firm would send an order directly to plaintiff, it was referred to Limited. That firm in turn placed its order for the material and only then would it be filled. All goods were sold by plaintiff to Limited on open account and plaintiff sent monthly invoices to Limited. Sales and shipments to Limited were priced f.o.b. Mexico, Missouri. Shipments from plaintiff to Limited were accomplished with costs of shipment prepaid by plaintiff, thus shipments to Limited or its order were f.o.b. destination.

23. During the years 1952 and 1953, plaintiff made sales to Latin American customers (that is, customers in Mexico, Central America, South America, and the Caribbean Islands) pursuant to arrangements made by Mr. Orville H. Bead shortly after plaintiff began selling in Canada. At that time, Mr. Eead traveled through a number of Latin American countries and discussed the arrangements to be made with prospective customers and distributors (previously customers and distributors of A. P. Green Fire Brick Company).

24. The proposed operating procedure was expressed in a printed letter sent to all companies in Latin America to or through whom plaintiff planned to make sales, a majority of whom Mr. Eead called upon on behalf of plaintiff.

25. The letter referred to above was dated March 31,1952, and reads as follows:

GeNtlemen : During the past several weeks I have had an opportunity to discuss m person with many of our distributors in Latin America the proposed operation of the newly formed A. P. Green Export Company. I was very glad to learn from all of them that they see no troubles involved for them or their customers, and I appreciated greatly their cooperative attitude.
For those of you whom I could not visit, I would like to give this brief outline of the operation of the Export Company, and explain how we would like to handle orders in the future.
The A. P. Green Export Company (which we will call “EXPOET” in this letter) has been formed to handle export business in the Western Hemisphere, and its successful operation will enable us to give better service to you and your customers. It has been in operation on export sales to Canada for the past two months and we have found that it works there very well.
Government regulations require two changes in our usual methods of operation, neither of which should cause you or your customer any difficulty but should, in fact, be helpful.
In the first place, we must actually conclude our contracts for sale outside the United States, instead of accepting purchase orders at our home office as we have in the past. We propose to do this in the following manner:
The distributor, upon the receipt of any inquiry or order, will write to A. P. Green Export Company for a quotation, just as you have written to the Green Company in the past. The quotation submitted by EXPOET, in addition to giving prices, terms, delivery date, etc., will state:
“This quotation shall be binding upon A. P. Green Export Company upon acceptance by you, and the placing of that acceptance in the mails.”
Under that provision the contract is completed and binding upon EXPORT when accepted and placed in the mail rather than when your acceptance reaches Mexico. Thus it is then a contract which has been completed outside the United States.
Instead of marking the quotation “accepted” it would be equally satisfactory for you merely to issue your usual purchase order, and on the order to show that it accepts our quotation of such and such a date.
"When the customer orders directly from EXPORT we would want to submit a similar quotation for acceptance, or have his purchase order refer to our quotation. In such cases you might have to explain the procedure to the customer and point out that it is not to their disadvantage.
Actually it is preferable, as far as we are concerned, to have all orders made out to us by the distributor rather than the customer. When the customer makes out his order direct to the Green Company or to EXPORT, but mails it to you, we would like to have you issue your purchase order to us, based on our quotation. We will not consider that this makes you liable for collection of the account.
In either case we can invoice the customer direct on your instructions. In other words, the customer might issue an order to you and you in turn issue an order to EXPORT, making whatever reference is necessary to your customer’s original order number, etc., and giving us instructions to invoice the customer direct. You can also mail to us the customer’s original order as a further reference.
We realize that some delays might arise in submitting these quotations to you for acceptance when you already have a purchase order from your customer. To eliminate any inconvenience or delay, we suggest that you indicate on your request for quotation that you have a purchase order from your customer. We will then place the order in our production schedule without waiting for the formal acceptance of our quotation.
A second requirement under which EXPORT must operate is that EXPORT must retain title to the goods until their arrival at destination. We plan to do this by inserting in our quotations, formal acknowledgments, and invoices, the following:
“Title to these goods and responsibility for their shipment and safe carriage shall be in A. P. Green Export Company until their delivery to the customer at destination.”
Actually this provision is a benefit to the customer. However, it does have a very legal sound and it might be necessary to explain to some of your customers that this has no disadvantages for them.
Our sales prices will be the same and you will receive the same discounts and benefits as on your sales agreement with A. P. Green Fire Brick Company, and will have the same responsibilities. As a matter of fact, the export department of the Green Company will continue in operation, as some orders cannot be handled through EXPORT. For example, any orders placed in the United States for shipment into your territory will be handled by the export department, and probably all orders involving letters of credit will also be handled by the export department.
The A. P. Green Export Company naturally will maintain a separate set of books, so that you may have accounts due both to A. P. Green Fire Brick Company and A. P. Green Export Company, and you may have commissions payable to you from both companies. In any case, the totals will be the same as if it were handled all by one company.
Orders which are already on the books of the A. P. Green Fire Brick Company will be handled by the export department of the Green Company, but as far as possible we would like for EXPORT to handle all orders not yet entered. In other words, effective April 1,1952, we want to channel all possible business through EXPORT. We will certainly appreciate very much your cooperation in making it possible for us to do this. If you have any questions, or if later questions should arise, we will be happy to clarify any points for you.

26. The procedure outlined in the letter quoted above was followed by plaintiff in effecting sales to customers in Latin American countries. Plaintiff submitted written quotations upon receipt of inquiries for merchandise. Such quotations always contained a provision to the effect that the quotation would be binding upon plaintiff when accepted and placed in the mail. The prices quoted included transportation charges and usually insurance charges. Although Mr. Orville H. Read called on some customers, the orders for goods were usually solicited by distributors through their salesmen. The plaintiff had no salesmen employed in Latin America. It operated no warehouses there.

27. Insurance on goods shipped to Latin American countries was carried for the benefit of plaintiff and paid for by plaintiff, who had accepted responsibility for the safe delivery of the goods.

28. The goods sold to Latin American customers were sold on open account, usually 30-day sight draft, and paid for in the Latin American country. Sometimes plaintiff discounted at United States banks the unaccepted drafts on its customers. Plaintiff in every such case endorsed the draft and was liable to the discounting bank for its payment. Its drafts were not to be honored or presented abroad until arrival of the relative shipment.

29. The refractory products sold by plaintiff were sold for installation in industrial furnaces and heavy equipment in which there are high temperatures. None of the products sold by plaintiff were destined for use outside of the Western Plemisphere.

30. Plaintiff’s products were sold in competition with those of American manufacturers other than A. P. Green Fire Brick Company and also with those of English, French, Italian, Austrian, and Swedish manufacturers.

31. During the years 1952 and 1953, plaintiff sold no goods outside of the Western Hemisphere or in the United States.

32. In pricing goods, plaintiff added to the factory price the shipping and insurance costs which it was to bear, making the total price.

33. Most of the goods shipped by plaintiff to Canada were shipped freight prepaid, but if the customer preferred that they be shipped collect they would be so shipped.

34. The returns, books, and records of plaintiff were examined by an internal revenue agent for the defendant. The examination of A. P. Green Export Company resulted as an outgrowth of an examination of A. P. Green Fire Brick Company which was started in April or May of 1953 or 1954. On that occasion, the agent examined the general ledger, the order jackets, the sales invoices, the bills of lading, and minutes of the Board of Directors. However, plaintiff has a general policy of destroying files after three years and as a result the files for the years 1952 and 1953 were destroyed. After the agent’s examination was completed, he submitted his report to plaintiff.

35. Based upon the agent’s examination of the foregoing documents and evidence, the agent made a reallocation of both income and expenses for the A. P. Green Fire Brick Company and the A. P. Green Export Company, in order to report plaintiff’s true income from its business. F olio wing conferences with representatives for the taxpayer, the reallocation was agreed to by the taxpayer. As a result thereof, there was a net overassessment of $7,649.81 for 1952, and a net overassessment of $11,724.93 for 1953. The principal changes in the tax liability, as computed by the agent, resulted from disallowance of exemptions as a Western Hemisphere trading corporation and allocations of income to the parent corporation, A. P. Green Fire Brick Company. The recomputation of the tax liability included the disallowance of a deduction for income taxes which plaintiff would have owed if plaintiff had conceded that it had income from sources within Missouri. Such income taxes to the State of Missouri were never paid.

36. The revenue agent studied the statute and looked at the general ledger and quite a number of order files. He looked at all of the sales invoices and the summaries. He tried to make a determination as to where title passed on ■the sale of goods by plaintiff. Plaintiff intended that title to all goods sold by it should pass outside of the United States.

37. During the years 1952 and 1953, all the goods sold by plaintiff were sold within the Western Hemisphere outside of the United States.

CONCLUSION OP LAW

Upon the foregoing findings of fact which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover, together with interest as provided by law, and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Buie 38(c) of the Buies of this court.

In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amounts due thereunder, it was ordered on May 26, 1961, that judgment for plaintiff be entered for $21,248.27 for the year ended December 31, 1952, and for $36,638.82 for the year ended December 31, 1953, together with statutory interest as provided by law. 
      
       That the plaintiff could qualify as a Western Hemisphere trade corporation under section 109, Internal Revenue Code of 1939 appears clearly to be the result Intended by the Congress. To hold otherwise would defeat the purpose of the statute — the encouragement of foreign trade by domestic corporations. In effect, the Congress has said to the taxpayer: “If you meet the Income and other requirements of the act, we will allow you certain tax benefits In order that you might enjoy as favorable a position as foreign corporations trading in the Western Hemisphere."
     
      
       Complete discussion of the legislative history filed with the record of the case as appendix A.
     
      
       Complete discussion filed with the record of the case as appendix B.
     
      
       The law of several countries requires importers to insure goods subject to import in national insurance companies. If the seller retains ownership such laws are not applicable. See Costa Rico, Ley de Monopolio de Seguros, Oct. 5, 1924; Argentina, Decreto no. 12988, effective June 27, 1947.
     
      
       Sum of figures la one cent greater but all figures were plead In petition and admitted by answer.
     