Income that a Whirlpool Corp. subsidiary in Luxembourg received from appliance sales to Whirlpool-US and Whirlpool Mexico in 2009 constituted foreign base company sales income under Internal Revenue Code Section 954(d)(2) and should have been included in Whirlpool's income for that year, the court majority said in the 2-1 decision.
The court majority said the income plainly met a two-part test laid out in the statute to be considered foreign base company sales income, or FBCSI. The first condition required Whirlpool's Luxembourg subsidiary conducting activities through a branch or similar establishment outside the company where it was incorporated. The second condition was that the purpose of the arrangement was to defer U.S. tax, the court said, upholding a decision by the U.S. Tax Court.
"We therefore agree with the Tax Court that, under the text of the statute alone, '[Lux's] sales income is FBCSI that must be included in petitioners' income under subpart F,'" U.S. Circuit Judge Raymond Kethledge said in the majority opinion.
"We are disappointed in the Sixth Circuit's decision, but we are reviewing the ruling in detail to determine our legal options going forward," the company said.
The decision affirmed a May 2020 ruling by U.S. Tax Court Judge Albert Lauber, who found that $45 million of profits connected to appliance manufacturing in Mexico fell under the Subpart F regime that immediately taxes some earnings from U.S. companies' foreign affiliates.
Whirlpool lawyers argued before the Sixth Circuit that the income in question came from a Mexican branch's manufacturing operations and isn't taxable as FBCSI, while the government argued that the company's Luxembourg affiliate effectively earned the income and it should be deemed FBCSI.
In a dissenting opinion, Circuit Judge John Nalbandian said the Tax Court incorrectly granted summary judgment to the IRS. The statute provides for an exception that wasn't adequately considered by the court majority, he said.
"In my view, Lux didn't generate taxable foreign base company sales income because it 'manufactured' the property it bought and sold," Judge Nalbandian said.
The U.S. Supreme Court won't hear Whirlpool's challenge to a Sixth Circuit ruling that the company owes taxes on about $45 million of foreign income, according to an order list from the top court published on Monday, November 21, 2022.
ReplyDeleteThe Supreme Court let stand a ruling that Whirlpool owes taxes on about $45 million earned by its Luxembourg affiliate.
The denial of certiorari lets stand the appeals court's ruling that the IRS can tax income earned by Whirlpool's Luxembourg affiliate. A split three-judge panel found in December that the unit's sales income, which stemmed from appliances manufactured by Whirlpool's Mexican affiliate, constituted foreign base company sales income, or FBCSI, under Internal Revenue Code Section 954(d)(2) . The appeals court affirmed a May 2020 decision by the U.S. Tax Court.
The court majority said the income plainly met a two-part test laid out in the statute to be considered FBCSI.
The three-judge panel and then the full appeals court found no reason to rehear the case and ruled that all the issues raised in the company's rehearing petition were fully considered during the initial proceedings, according to the order.