Metropolitan Life Insurance Company v. United States

• Decision Date: 14 April 1967
• Docket Number: No. 79-59,361-64.,444-60,79-59
• Parties: METROPOLITAN LIFE INSURANCE COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

375 F.2d 835 (1967)

METROPOLITAN LIFE INSURANCE COMPANY v. The UNITED STATES.

Nos. 79-59, 444-60, 361-64.

United States Court of Claims.

April 14, 1967.

Thomas N. Tarleau, New York City, attorney of record, for plaintiff; George E. Walton, Bernard G. Hildebrand, New York City, Robert Holt Myers, Williams, Myers & Quiggle, Washington, D. C., Laurence G. Bodkin, Jr., and Willkie, Farr, Gallagher, Walton & FitzGibbon, New York City, of counsel.

Mildred L. Seidman, Washington, D. C., with whom was Asst. Atty. Gen. Mitchell Rogovin, for defendant; Richard M. Roberts, Lyle M. Turner, Philip R. Miller, and Martin B. Cowan, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

ON PLAINTIFF'S MOTIONS FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTIONS FOR SUMMARY JUDGMENT

DAVIS, Judge.

This is the fourth time in as many years that we are called upon to consider the application of the foreign tax credit (Sec. 131 of the Internal Revenue Code of 1939; Sections 901, 903 of the Internal Revenue Code of 1954) to the Canadian premiums taxes on mutual life insurance companies. See Prudential Ins. Co. of America v. United States, 319 F.2d 161, 162 Ct.Cl. 55 (1963); Prudential Ins. Co. of America v. United States, 337 F.2d 651, 167 Ct.Cl. 598 (1964), pending on petition for a writ of certiorari, 386 U.S. ___, 87 S.Ct. 1375, 18 L.Ed.2d 457 (filed March 30, 1967); Equitable Life Assurance Society v. United States, 366 F.2d 967, 177 Ct.Cl. ___, 386 U.S. ___, 87 S.Ct. 1375, 18 L.Ed.2d 457 (Oct. 1966), pending on petition for a writ of certiorari, (filed March 13, 1967). In that series of decisions we held that various of these premiums taxes imposed by the Dominion, Ontario, and Quebec for 1949 through 1956 were paid "in lieu of a tax upon income" and were therefore available for the foreign tax credit. Here, the Metropolitan Life Insurance Company claims (in three companion cases) the same treatment for premiums taxes paid variously for 1946 and 1949-1957 to the Dominion, Ontario, Quebec, Manitoba, Newfoundland, Nova Scotia, and Prince Edward Island.¹ The parties have agreed that the relevant statutes of the Dominion, Quebec, and Ontario are the same for the years 1949-1956 as in the earlier cases; without serious dispute we find this also to be true of 1946 and 1957.² For the fourth time we uphold the taxpayer. In this opinion we do not retrace our steps; the Government's successive arguments in the prior cases have already been answered and need not be discussed again insofar as they are repeated pro forma. We limit ourselves to the contentions pressed in the current round.

One of the points the Government urges strongly is that Congress intended the "in lieu" part of the foreign tax credit to apply only to so-called "empirical" income taxes — those clearly seeking to levy solely on net income but using a simplified or convenient formula or method for calculating such profit in order to avoid the administrative difficulties of ascertaining a nonresident's net income within the country. The legislative history of the 1942 amendment adding the "in lieu" provision is said to demonstrate that the Congressional purpose was to extend the credit only that far and no further. See the Senate report quoted in Prudential I, supra, 319 F.2d at 162-163, 162 Ct.Cl. at 58-59; Statement of Mitchell B. Carroll, representing the National Foreign Trade Council, Hearings before the Senate Committee on Finance on the Revenue Act of 1942, 77th Cong., 2d Sess. 206, 207-208, 210-212, 214-217.³

We do not interpret this history as confining the "in lieu" amendment to specific foreign taxes which can be characterized as "empirical" or administrative or "short-cut" attempts to reach the same figure as the normal foreign income tax would bring if it could more easily be calculated. These were, it is true, the main examples given by the spokesman for the National Foreign Trade Council (Mr. Carroll), but he also referred to a Guatemala statute exempting from the general income tax companies which had their taxes fixed by contract or law (citing the agreement of an American company to have its exported agricultural commodities taxed at 1½ cents per unit), and he observed, generally, that "the income-tax laws or decrees of various Latin-American countries provide for taxation on an arbitrary basis in lieu of the tax on net income" (emphasis added).⁴ Above all, he emphasized the overriding aim of the foreign tax credit to forestall double-taxation of the earnings of the American company on foreign soil — first by the other country and then by the United States. See American Chicle Co. v. United States, 316 U.S. 450, 452, 62 S.Ct. 1144, 86 L.Ed. 1591 (1942).

In recommending the extension of the credit, the Senate committee report (S. Rep. No. 1631, 77th Cong., 2d Sess. 131-32 (1942-2 Cum.Bull. 602)) refers to substitute taxes (measured by gross sales, gross income, or number of cents produced) "growing out of the administrative difficulties of determining net income on taxable basis" within the foreign country, but it does this only by way of example (the report commences this reference by "Thus") showing that our then internal revenue law recognized only foreign taxes imposed "upon a basis corresponding approximately to net income" under the American concept of that term. Without indicating that this illustration of non-income taxes levied because of "administrative difficulties" was the only one it wished to cover, the committee simply said that it "deemed it desirable to extend the scope of this section" (the foreign tax credit) and recommended the broad language of the "in lieu" provision as we now have it.

These capsule observations do not persuade us that Congress excluded "in lieu" taxes imposed by a foreign country, not because of administrative or computation or "empirical" difficulties, but because it was considered bad policy or inconsistent with the country's legal theory to levy the normal income tax upon a particular class of company.⁵ In the "in lieu" modification, Congress continued and expanded its prime purpose of preventing double taxation of the American company's foreign income.⁶ This was now to be done by allowing the credit for any alien tax imposed instead of an income tax (if the latter was generally levied) for whatever reason the other country might consider it proper to substitute the "in lieu" levy in the special case for the ordinary income tax generally imposed. Cf. Owen, The Foreign Tax Credit 77 (1961). In that way there would be no discrimination against the American company abroad which is exempted from the ordinary foreign income tax — for administrative convenience or for reasons of policy or of legal theory — but is instead required to pay another type of tax in order to contribute to the other country's revenues.⁷ There need be no functional connection between the foreign income tax and the "in lieu" tax; no coordination of rates; no effort to approximate the amount of the general income tax or to reach the same subject matter or to replace the normal formula for computing income by a special formula designed to achieve the same or roughly the same amount. If that had been the perimeter of the Congressional objective, it would only have been necessary to declear that "income, net profits and excess profits taxes" shall include taxes which "in effect" or "approximately" or "in substance" reach income and profits — rather than to provide, as Congress did, coverage of all taxes paid "in lieu" of income taxes otherwise generally imposed. Congress seems to us to have recognized that taxing jurisdictions, exempting a type of business from the ordinary income tax, often substitute a wholly separate tax grounded in another theory and yielding a different amount.⁸ The credit against our income tax is to be kept within reasonable bounds, and tied to the fundamental purpose of preventing double taxation, by the continuance of the limitation (see 1954 Code § 904) allowing the credit "only if and to the extent the taxpayer has net income from sources within the foreign country or from sources without the United States, as the case may be." S.Rep. No. 1631, supra, p. 132. See Equitable, slip op. p. 13, 366 F.2d at 974.

The sovereign inquiry, then, is "whether the tax was levied by the foreign country in place of or instead of or as a substitute for some existing income or profits tax." United States v. Waterman S.S., 330 F.2d 128, 131 (C.A.5, 1964), reviewed on another point, 381 U.S. 252, 85 S.Ct. 1389, 14 L.Ed.2d 370 (1965). See, also, Compania Embotelladora Coca-Cola, S. A. v. United States, 139 F.Supp. 953, 955, 134 Ct.Cl. 723, 727-728 (1956). If the Canadian jurisdictions with which we are now concerned had all said explicitly that for mutual life insurance companies the premiums tax was in lieu of the general income tax, as some jurisdictions have,⁹ there would be no question, we feel sure, that the foreign tax credit would be allowable here.¹⁰ In our prior decisions we have held that, without saying so explicitly in the legislation, this is what the Dominion and the provinces have done, in actual effect, with respect to mutual life insurance companies.

We have found "a very close connection between the imposition of the Canadian premiums taxes involved here and the failure to impose income taxes." Prudential II, 167 Ct.Cl. at 604, 337 F.2d at 654. The Canadian jurisdictions, we also found, made "a cognizant and deliberate choice * * * between the application of premiums taxes or income taxes for mutual life insurance companies. This choice was first made by the Canadian provinces at various times generally in the 1930's, as they recognized the income tax as an increasingly effective and necessary method of raising revenue." They made a "deliberate selection between a special method of raising revenue the premiums tax and a general method the...