BANK OF AMERICA NATIONAL T. & S. ASS'N v. United States, 184-68

Citation459 F.2d 513
Decision Date12 May 1972
Docket Number138-69.,No. 184-68,184-68
CourtCourt of Federal Claims

Harry R. Horrow, San Francisco, Cal., Attorney of Record, for plaintiff; Stephen J. Martin, David L. Klott, and Pillsbury, Madison & Sutro, San Francisco, Cal., of counsel.

Michael H. Singer, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant; Philip R. Miller, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, and KUNZIG, Judges.


DAVIS, Judge.*

For a domestic corporation, § 901(a) and (b) (1) of the Internal Revenue Code of 1954 allows a credit against federal income taxes of "the amount of any income, war profits and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States * * *."1 Bank of America National Trust and Savings Association, organized under the laws of the United States with its principal office at San Francisco, seeks judgment in these consolidated cases for refund of income tax for its taxable years 1959, 1960, and 1961. It challenges the determination of the Internal Revenue Service that certain foreign taxes paid for these periods were not "income taxes" within § 901(b) (1), and hence not to be treated as foreign tax credits against plaintiff's income tax liability pursuant to § 901(a). No. 184-68 covers 1959 and 1960, while No. 138-69 concerns 1961. The foreign taxes involved were paid, for all three years, to the Kingdom of Thailand and the Republic of the Philippines, and also to the Philippines for 1958.2 For 1961, taxes were also paid to the Republic of Argentina.

In each of these countries, plaintiff conducted a general banking business from a branch office. These were located at Bangkok, Thailand; Manila in the Philippines; and Buenos Aires, Argentina. In each nation, 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, travelers checks and cashiers' checks, and acceptance of trade paper.

With respect to this banking business, Bank of America paid the three jurisdictions various types of taxes. The findings detail the names of those imposts and the amounts paid. It is enough to say here that in each country plaintiff paid the general income tax imposed on corporations operating there.3 In addition, taxpayer paid other tolls.

Demand for credit under § 901 of most of these assessments was made either on the federal income tax returns or by refund claim.4 After consideration, the Revenue Service allowed (except for a small inadvertent error which the parties have corrected by stipulation) the following of the foreign taxes as credits against plaintiff's federal income tax liabilities for the taxable years: Thailand Companies Income Tax and Profit Remittance Tax, Philippines Tax on Foreign Corporations, and Argentina Corporation Income Tax and Excess Profits Tax. This treatment is not disputed. In addition, the parties have agreed that the Philippines Residence Tax was not creditable but was properly allowed as a deduction under § 164.

When the case was submitted to the trial commissioner, the following taxes remained in dispute:

Kingdom of Thailand: Business Tax, Type 1 and Type 2, Municipal Tax, and Receipts Tax.
Republic of the Philippines: Tax on Banks.
Republic of Argentina: Tax in Substitution of Surcharge on Free Transfer of Property, City of Buenos Aires Tax on Profit-Making Activities, and Contribution to the Bankers\' Institute for Social Services.

The trial commissioner denied taxpayer the right to recover with respect to the Thailand Municipal Tax, the Thailand Receipts Tax, the Argentina Tax in Substitution of Surcharge on Free Transfer of Property, and the Argentina Contribution to the Bankers' Institute for Social Services. Plaintiff has not sought review of those rulings and thereby acquiesces in them. We agree with the trial commissioner's discussion on that aspect of the case, and in Part I of this opinion, infra, adopt it (with slight modifications) as our own.

The trial commissioner held, however, for plaintiff on the other taxes: the Thailand Business Tax, Type 1 and Type 2; the Philippine Tax of Banks; and the City of Buenos Aires Tax on Profit-Making Activities. We disagree with that position and in Parts II, III, and IV, infra, give our reasons for holding against plaintiff on those levies.


With respect to the four foreign taxes (two imposed by Thailand and two by Argentina) which Trial Commissioner Hogenson believed not to be creditable under § 901, we concur that the Bank of America has failed to meet its burden of proof or persuasion5 that any of those assessments is an "income tax" accrued and payable to a foreign country. It is now settled that the question of whether a foreign tax is an "income tax" within § 901(b) (1) must be decided under criteria established by our revenue laws and court decisions, and that the foreign tax must be the substantial equivalent of an income tax as the term is understood in the United States. Missouri Pacific R. R. v. United States, 392 F.2d 592, 597, 183 Ct.Cl. 168, 175 (1968); Allstate Ins. Co. v. United States, 419 F.2d 409, 413-414, 190 Ct.Cl. 19, 27 (1969).

On the Thailand Municipal Tax and the Thailand Receipts Tax, plaintiff cites no provisions of the translated portions of The Revenue Code of Thailand attached to the stipulation of facts, nor are any provisions found there, which seem to pertain to those laws. There is no other testimony or evidence concerning the nature of the taxes. Taxpayer's position is that those taxes present no independent legal issues since allegedly each is calculated as a flat percentage of plaintiff's annual liability for the Thailand Business Tax, citing Rev.Rul. 70-21, 1970-1 Cum.Bull. 158, for the proposition that, in that situation, the creditability of the dependent foreign tax depends upon the creditability of the principal tax. In response to defendant's correct assertion that no evidence was adduced as to the nature of those taxes, nor as to the nature of plaintiff's liability for such taxes, plaintiff's reply was that the determination of foreign law is a question of law as to which the court and the trial commissioner may consider relevant materials from any source. Efforts by the trial commissioner to obtain a reliable and authoritative translation of such laws proved unsuccessful. Rule 125 cannot reasonably be interpreted to shift the burden onto the court or the trial commissioner to search for documentation necessary for determination of a question of foreign law, particularly in the circumstances where the litigant before the court conducts a business in the foreign country, subject to its laws.

On the Argentina Tax in Substitution of Surcharge on Free Transfer of Property, it is sufficient to observe that that tax is levied upon a corporate taxpayer annually at the rate of 1 percent of its capital and reserves. Plaintiff has wholly failed to show how or in what respect the tax was imposed upon its Argentina income in 1961. Plaintiff's distress is expressed by the statement in its opening brief to the trial commissioner that it was unsuccessful in obtaining from its Argentine office the details of the computation of the allegedly creditable and noncreditable portions of the tax.

The Argentina Contribution to the Bankers' Institute for Social Services is obviously a social security revenue measure. The Bankers' Institute, an instrumentality of the government of Argentina, administers a social security program within the banking industry. The revenue is basically derived from compulsory contributions of employees and employers within the banking industry, with the respective contributions being 2 percent of monthly salaries received and paid. By amendment effective March 7, 1957, each bank was required to pay contributions equal to 2 percent of the total amounts received by it in respect of interest and commissions. The proof with respect to the amendment is fragmentary, and plaintiff's position cannot be sustained that the 1957 amendment repealed the previous provisions imposing contributions upon the employer to match the required contributions of employees. In any event, the tax of 2 percent of amounts received by a bank by way of interest and commissions, which tax was in whole or in part the compulsory contributions of the bank to funds otherwise contributed by the bank's employees to sustain a government social security program for bank employees, cannot be equated to an income tax under United States concepts.


There is greater difficulty in disposing of the three taxes the trial commissioner held creditable: the Thailand Business Tax, Type 1 and Type 2; the Philippines Tax on Banks; the Buenos Aires Tax on Profit-Making Activities.

A. From the unchallenged findings and the presentations of the parties, we are justified in assuming that these were all in substance levies on the taxpayer's gross income from its banking business carried on by its branch in the particular country. Plaintiff has not proved otherwise or offered to prove otherwise. Defendant now accepts that description of the tax.

Section 78 of the Thailand Business Tax defines persons engaged in business as those listed in the Business Tax Rate Schedule of The Revenue Code of Thailand, and states that such persons have the duty to pay business tax on the "gross takings" for each tax month at the rates provided in the schedule. Section 79 defines "gross takings" from the business of banking as (a) interest, discounts, fees or service charges, and (b) profit, before the deduction of any expense, from the exchange, purchase or...

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