Bank of America Nat'l Trust & Saving Ass'n v. Comm'r of Internal Revenue
| Decision Date | 18 March 1974 |
| Docket Number | Docket No. 3568-71. |
| Citation | 61 T.C. 752 |
| Parties | BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, A NATIONAL BANKING ASSOCIATION, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Harry R. Horrow and Stephen J. Martin, for the petitioner.
Vernon R. Balmes, for the respondent.
Petitioner claimed a credit against its income taxes under sec. 901, I.R.C. 1954, for certain Thailand, Philippines, Republic of China (Taiwan), and City of Buenos Aires taxes imposed in respect of the banking activities of its branches. Held, since such taxes were imposed on gross income without deduction for any related costs and expenses, they did not constitute ‘income * * * taxes' within the meaning of sec. 901(b)(1). Bank of America National T. & S. Assn. v. United States, 459 F.2d 513 (Ct. Cl. 1972), followed. TANNENWALD, Judge:
Respondent has determined the following deficiencies in petitioner's Federal income taxes:
+---------------------------------------+
¦Year ¦Deficiency ¦
+-------------------------+-------------¦
¦1965 --------------------¦$1,202,390.96¦
+-------------------------+-------------¦
¦1966 --------------------¦1,245,141.15 ¦
+---------------------------------------+
There are two questions presented for decision:
(1) Whether petitioner is collaterally estopped from arguing that the Thailand business tax, the Philippines tax on banks, and the City of Buenos Aires tax on profit-making activities are ‘income * * * taxes' within the meaning of section 901(b)(1);1 and
(2) Whether the Thailand business tax, the Philippines tax on banks, the City of Buenos Aires tax on profit-making activities, and the Republic of China (Taiwan) business tax qualify for the foreign tax credit under sections 901(a) and901(b)(1).
This case was fully stipulated pursuant to Rule 30 (now Rule 122), Tax Court Rules of Practice and Procedure.
Petitioner was and now is a national banking association duly organized and existing under the laws of the United States, with its principal office in San Francisco, Calif., at the time the petition herein was filed. For the taxable years 1965 and 1966, it filed its Federal income tax returns with the district director of internal revenue in San Francisco.
In the years 1959, 1960, 1961, 1965, and 1966, petitioner conducted a general banking business from branches in Buenos Aires, Argentina; Manila, Republic of the Philippines; Bangkok, the Kingdom of Thailand; and Taipei, Republic of China (Taiwan). This business included, but was not limited to, the making of commercial, real estate, and personal installment loans, the rendering of trust department and property management services, foreign exchange transactions, the issuance of letters of credit, guarantees, traveler's checks, and cashier's checks, and acceptance of trade papers. In each country referred to above, foreign taxes were imposed upon and paid by petitioner in foreign currencies. Since there is no dispute between the parties as to conversion rates from said currencies to United States dollars, we have accepted the stipulations of the parties and will refer to all amounts solely in terms of the latter.
Taiwan.— For the years 1965 and 1966, petitioner had a net loss of $44,240.17 and net income of $252,298.31, respectively, from its Taipei branch. In these years, petitioner accrued and paid the following taxes imposed on its Taipei branch by the laws of Taiwan:
+-----------------------------------------------------------------------+
¦ ¦1965 ¦1966 ¦
+--------------------------------------------------+---------+----------¦
¦Income tax law ch. III (“Profit-Seeking-Enterprise¦ ¦ ¦
+--------------------------------------------------+---------+----------¦
¦Income Tax”) ¦$7,536.22¦$51,114.33¦
+--------------------------------------------------+---------+----------¦
¦Business tax law, ch. I ('Business Tax‘) ¦9,812.13 ¦32,920.80 ¦
+--------------------------------------------------+---------+----------¦
¦Total ¦17,348.35¦84,035.13 ¦
+-----------------------------------------------------------------------+
The profit-seeking enterprise income tax was the generally imposed income tax payable by corporations doing business in Taiwan for the years 1965 and 1966. 2 In computing its net or taxable income subject to the profit-seeking enterprise income tax, petitioner claimed and was allowed a deduction for the amount of the business tax which it paid. Under the profit-seeking enterprise income tax, the tax is assessed as a percentage of the ‘Profit-Seeking Enterprise Income Amount’ (ch. III, sec. 3, Income Tax Law) defined in article 24 as follows:
The amount of income of a profit-seeking enterprise shall be the net income, i.e., the gross yearly income after deduction of all costs, expenses, losses and other taxes.
The business tax is separate and distinct from the income tax and provides, in pertinent part, as follows:
Any public or private enterprise or any enterprise jointly operated by public and private for profit-seeking purposes shall be subject to the business tax collectible under this Law by provincial governments or governments of the municipalities under direct jurisdiction of the Executive Yuan (hereinafter referred to as municipalities).
The provisions of this Law shall be applicable to organizations or societies and their operational agencies which conduct business with the general public.
In collecting the business tax, provinces and municipalities shall be confined to their respective jurisdictional areas, and the tax shall be levied according to the business amount of a profit-seeking enterprise on the basis of the Table of Items Subject to Business Tax of this Law. * * *
* * * if a foreign profit-seeking enterprise has its branch office within the territory of the Republic Of China, the business tax shall be levied on the amount of the business conducted within the territory of the Republic of China.
Rates of the business tax are classified into the following four categories according to the Table of Items Subject to Business Tax of this Law:
4. Items under Category IV of the said Table shall be taxed at not lower than 3.5 percent but not higher than 6 percent of the business amount.
Category IV of the table of items subject to business tax includes the banking business and provides that its taxable items are: (1) Interest on loans, remittances, and discounted bills; (2) remittance charges, commissions, handling charges, or renumeration; (3) warehouse charges, house rents, or custody charges; and (4) proceeds from selling silver, gold, and foreign currencies.
The parties agree that the profit-seeking enterprise income tax is creditable and the only tax presently in dispute is the business tax.
Thailand.— In 1965 and 1966, petitioner's net income for its Bangkok branch was $683,715.04 and $1,136,247.40, respectively. Petitioner accrued and paid to Thailand, as taxes imposed on the branch's operations, the following taxes pursuant to the Revenue Code and laws of Thailand:
+-----------------------------------------------------------------------+
¦ ¦1965 ¦1966 ¦
+-----------------------------------------------+-----------+-----------¦
¦Revenue Code, sec. 65, div. 3, ch. IV, tit. II ¦ ¦ ¦
+-----------------------------------------------+-----------+-----------¦
¦(“Companies Income Tax”) ¦$131,707.07¦$213,381.20¦
+-----------------------------------------------+-----------+-----------¦
¦Revenue Code, sec. 70, bis (“Profit Remittance ¦ ¦ ¦
+-----------------------------------------------+-----------+-----------¦
¦Tax”) ¦21,927.90 ¦18,083.15 ¦
+-----------------------------------------------+-----------+-----------¦
¦Revenue Code, sec. 78, div. 1, ch. IV, Category¦ ¦ ¦
+-----------------------------------------------+-----------+-----------¦
¦12 of Business Tax Schedule (“Business Tax”): ¦ ¦ ¦
+-----------------------------------------------+-----------+-----------¦
¦Type 1 ¦29,713.90 ¦38,473.98 ¦
+-----------------------------------------------+-----------+-----------¦
¦Type 2 ¦37,229.19 ¦57,870.17 ¦
+-----------------------------------------------+-----------+-----------¦
¦Thailand municipal tax ¦6,694.31 ¦9,634.42 ¦
+-----------------------------------------------+-----------+-----------¦
¦Total ¦227,272.37 ¦337,442.92 ¦
+-----------------------------------------------------------------------+
Of these taxes, the only one presently in dispute is the business tax.
The companies income tax was generally imposed on the incomes of all corporations operating in the Kingdom of Thailand for each of the years 1959, 1960, 1961, 1965, and 1966. In computing its income subject to this tax, petitioner was allowed deductions for the amount of business tax which it paid.
The business tax, also imposed for each of said years, is set forth in chapter IV of the Revenue Code of Thailand. Section 78 of this Code states that persons engaged in any business listed in the business tax rate schedule ‘have the duty to pay business tax on the gross takings for each tax month’ at the rates provided in the schedule. Petitioner qualifies as a ‘banking Business' under this schedule. ‘Gross takings' from a banking business is defined by section 79 as '(a) interest, discounts, fees or service charges, and (b) profit, before the deduction of any expense, from the exchange, purchase or sale of currency, issuance, purchase...
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