On the Lessons to Be Learned From the 1983 Supreme Court Case ‘Container Corporation of America v. Franchise Tax Board’ for the Discussion of International Taxation in 2020

Abstract

In the realm of international taxation, one of the most important contemporary issues to be addressed, from a political as well as from a technical perspective, is the question whether the arm’s length standard should be preserved as the paradigm for international transfer pricing, or whether we need a new measuring-rod (i.e. formulary apportionment) for an “appropriate” allocation of the tax base between the different jurisdictions.

What is intriguing about the arm's length standard vs. formulary apportionment debate is that it is ongoing for decades. One of the most vivid confrontations can be found in the 1983 Supreme Court Case ‘Container Corporation of America v. Franchise Tax Board’. As will be shown in this paper, many of the arguments exchanged in ‘Container v. Franchise Tax Board’ remain valid for the contemporary discussion - as the question of a taxable nexus as well as the question of a “fair” taxation in a national context are addressed. It will also be instructive to consider the 1983 perspective on double-taxation resulting from a simultaneous application of formulary apportionment by one jurisdiction while other jurisdictions adhere to the arm's length standard.