In the case of Compania General de Tabacos de Filipinas v. Collector of Internal Revenue (1927), the U.S Supreme Court ruled in favor of the Compania General de Tabacos De Filipinas, a Spanish corporation engaged in tobacco manufacturing and farming in the Philippines. The company had been assessed for additional income taxes by Philippine tax authorities for 1913-1914 based on its profits from sales to its New York branch at prices higher than those reported. The court held that these transactions were not sales but transfers between two parts of a single entity, thus no profit could be realized or taxed until sold to an outside party. Therefore, it was improper for tax authorities to assess additional income taxes on this basis.

In the dissenting opinion for Compania General de Tabacos De Filipinas v. Collector of Internal Revenue, Justice Oliver Wendell Holmes Jr. argued that the majority's decision was inconsistent with previous rulings and principles of international law. He contended that a foreign corporation operating in U.S territories should not be exempt from taxes simply because it is owned by non-residents or foreigners. According to him, such an exemption would create an unfair advantage over domestic corporations which are subject to taxation regardless of their owners' residency status. Furthermore, he disagreed with the majority's interpretation of "income" under Philippine tax laws and believed that dividends paid out by a corporation constitute income liable for taxation.