In the 1944 case, Commissioner of Internal Revenue v. Scottish American Investment Co., Ltd., the U.S Supreme Court ruled in favor of the respondent, Scottish American Investment Company (SAIC). The issue at hand was whether SAIC's income from its U.S investments could be taxed by the United States government despite being a foreign corporation. The court held that under Section 217(a) and (b) of Revenue Act 1921, as amended by section 213(b)(3), dividends received during taxable years ending June 30th were exempted from normal tax to extent they were paid out of earnings accumulated before January 1st. Therefore, since SAIC’s income had been derived from dividends on shares it owned in US corporations which had been earned prior to this date, it was not subject to taxation. This decision clarified an important aspect regarding taxation laws for foreign corporations operating within US borders.

In the dissenting opinion for Commissioner of Internal Revenue v. Scottish American Investment Co., Ltd., it was argued that the majority's decision to allow a foreign corporation to deduct U.S. taxes from its income, despite not being liable for those taxes, contradicted both legal precedent and common sense. The dissenters contended that allowing such deductions would result in an unfair advantage for foreign corporations over domestic ones, as they could effectively avoid paying any tax on their U.S.-sourced income by claiming deductions they were not entitled to. They also pointed out that this interpretation of the law created a loophole through which companies could evade taxation entirely by setting up shell corporations overseas solely for tax purposes. Furthermore, they disagreed with the majority's assertion that Congress intended this outcome when drafting the relevant legislation.