Oil Base, Inc. v. Commissioner of Internal Revenue

Petitioner as taxpayer seeks review of a Tax Court decision respecting income taxes for the taxpayer’s fiscal year ending September 30, 1959. The case involves allocation of income between the taxpayer and its subsidiary, a wholly owned Venezuela corporation, Oil Base de Venezuela, C. A. (hereinafter referred to as “Obvenca”), which, during the year in question, served as taxpayer’s foreign sales representative.

The income derived by Obvenca was attributable to commissions and discounts allowed by the taxpayer pursuant to an agreement between the two companies. Finding these commissions and discounts to be roughly twice as large as those paid or allowed by taxpayer in agreements with five separate uncontrolled foreign sales representatives (including Obven-ca’s Venezuelan predecessor and three of Obvenca’s subagents), the Commissioner, under section 482, Internal Revenue Code of 1954, rejected the terms of the agreement as not clearly reflecting the income of the parties and having the effect of improperly shifting income from taxpayer to its controlled foreign subsidiary. Pursuant to Treasury Regulations the Commissioner allocated to taxpayer that income which the arm’s-length…