Compania Embotelladora Coca-Cola v. United States, 4907.

• Decision Date: 03 April 1956
• Docket Number: No. 4907.,4907.
• Citation: 139 F. Supp. 953,134 Ct. Cl. 723
• Parties: COMPANIA EMBOTELLADORA COCA-COLA, S. A., v. The UNITED STATES.
• Court: U.S. Claims Court

139 F. Supp. 953

134 Ct. Cl. 723

COMPANIA EMBOTELLADORA COCA-COLA, S. A., v. The UNITED STATES.

No. 4907.

United States Court of Claims.

April 3, 1956.

William P. McClure and John E. McClure, Washington, D. C., for plaintiff. Pope F. Brock and John D. Goodloe, Atlanta, Ga., were on the briefs.

David R. Frazer, Detroit, Mich., with whom was Asst. Atty. Gen. H. Brian Holland, for defendant. Andrew D. Sharpe, Washington, D. C., was on the brief.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, judges.

LITTLETON, Judge.

The plaintiff sues to recover $45,894.46 representing Federal income taxes and interest paid for the calendar years 1944 and 1945, with interest thereon. The question presented is whether the Cuban production tax paid by plaintiff during 1944 and 1945 was a tax paid in lieu of a foreign income tax within the meaning of section 131 (h) of the Internal Revenue Code of 1939, as amended, 26 U.S.C. § 131.

Section 131 provides:

"* * * (h) Credit for taxes in lieu of income, etc., taxes. For the purposes of this section and section 23(c) (1), the term `income, war-profits, and excess-profits taxes' shall include a tax paid in lieu of a tax upon income, war-profits, or excess-profits otherwise generally imposed by any foreign country or by any possession of the United States. * * *"

If the Cuban production tax paid by plaintiff for 1944 and 1945 was paid in lieu of a foreign income tax within the meaning of section 131(h), plaintiff is entitled under section 131(a) to credit those taxes against the income taxes imposed by the United States. The pertinent part of section 131(a) provides:

"* * * Allowance of credit. If the taxpayer chooses to have the benefits of this section, the tax imposed by this chapter, * * * shall be credited with:

"(1) Citizens and domestic corporations. In the case of a citizen of the United States and of a domestic corporation, 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; * * *."

The plaintiff is a corporation organized on December 16, 1942, under the laws of the State of Delaware. Since its organization plaintiff's business has been that of manufacturing and selling a soft drink beverage in Cuba under the trademark "Coca-Cola."

In 1900, the provisional government of Cuba directed publication of Military Order No. 463, thereby establishing a general profits tax. This was a tax on the profits of corporations and was the first general income tax established in Cuba.

On February 27, 1903, a production tax was enacted which levied a tax on the manufacture, sale, or consumption of certain classes of articles such as alcoholic liquors, tobacco, playing cards, soft drinks and prepared water. This tax was enacted to guarantee payment of a $35,000,000 loan and is known as the Speyer Loan production tax. As a result of the Cuban administrative interpretation, payers of the production tax were not required to pay the profits tax.

In 1927, the profits tax of 1900 was amended and, inter alia, payers of the production tax were specifically exempted from payment of the profits tax. In 1931, the profits tax was revised, the base was broadened to include the profits of individuals and unincorporated concerns, and the rate was made progressive. Also, those companies or persons paying the production tax of 1903 were continued to be specifically exempt from payment of the profits tax for the reason that "they are already taxed." On December 31, 1941, a surtax of 20 percent was imposed on the profits tax.

On December 31, 1941, the President of Cuba sanctioned Resolution Law No. 1 which imposed an income tax on the net profits of the natural or juridic persons who engaged in the manufacture of liquor, cider, table waters, soft drinks, tobacco and playing cards (payers of the production tax), and on salaries, wages, pensions, dividends, interest, proceeds, and any other kind of personal revenue. On April 5, 1943, the rates with respect to both the profits tax and the income tax were increased and a so-called tax on capital was imposed.

The plaintiff paid the Cuban production tax for the years 1944 and 1945. The plaintiff also paid for those years the Cuban income tax and the so-called tax on capital. In computing the Cuban income taxes for those years, deductions were allowed for the amount of the production taxes paid.

In its United States tax returns for the years 1944 and 1945, plaintiff claimed foreign tax credits under section 131(a) for the Cuban income taxes and so-called taxes on capital, as income taxes paid in a foreign country. Credits were also claimed under section 131(a) for those years for the production taxes, as taxes paid in lieu of foreign income taxes within the meaning of section 131(h).

The Commissioner of Internal Revenue allowed the credits for the Cuban income taxes and so-called taxes on capital,¹ but denied the credits for the production taxes. The Commissioner allowed deductions from income for the production taxes. The Commissioner assessed an income tax deficiency for 1944 in the amount of $26,548.72, plus interest of $3,880.10, or a...