Rev. Rul. 69-338

Advice has been requested whether the social security tax imposed by the Venezuelan Social Security Law upon the salary of an employee (a United States citizen) is creditable against his United States income tax under section 901 of the Internal Revenue Code of 1954.

The Venezuelan Social Security Law as published in the Official Gazette of July 11, 1966, established a system of compulsory social security in the cases of illness and accidents, maternity, invalidity, old age, survivors, and forced inactivity. Article 62 of the law provides that the employers and the workers subject to the system of compulsory social security are obligated to pay part of the contribution determined by the National Executive for both parties. Article 66 of the law provides, in effect, that the contributions for financing the compulsory social security shall be a percentage of the salary received by covered employees.

The treasury of the Venezuelan Institute of Social Security consists primarily of monthly contributions of employers operating businesses within its scope in an amount measured by the total salaries and wages paid to their employees, and of contributions from the covered employees made through withholding from their salaries.

Under section 901 of the Code, credit against United States income tax is allowable for foreign "income, was profits, and excess profits taxes" paid or accrued by the United States taxpayer. For a particular foreign tax to qualify as a creditable tax under section 901 of the Code it must be shown that the tax imposed by the foreign law is a tax on income within the United States concept thereof. Biddle v. Commissioner, 302 U.S. 573 (1938), Ct. D. 1303, C.B. 1938-1, 309.

Although the payments made by a worker under the Venezuelan Social Security Law are referred to as "contributions," such payments made pursuant to Article 66 of the law by compulsorily insured persons are "taxes" within the contemplation of the Federal income tax law. Such payments of a percentage of a worker's salary are analogous to the tax on wages of employees imposed by section 3101 of the Internal Revenue Code of 1954. Although the tax is not described as an income tax in section 3101 of the Code, it has been referred to as an additional income tax in court decisions involving the constitutionality of Federal employment or self-employment taxes. Helvering v. Davis, 301 U.S. 619, 635 (1937); Cain v. United States, 211 F.2d 375, 378 (1954), certiorari denied, 347 U.S. 1013 (1954).

Accordingly, since the Venezuelan Social Security tax provided by Article 66 of the Venezuelan Social Security law as enacted on July 11, 1966, is imposed on the basis of income, it is held that the contributions levied on the employee under such Article is an income tax which is creditable within the meaning of section 901 of the Code. However, the social security tax levied on the employers, although measured by the remuneration paid to employees, is not an income tax within the meaning of section 901 of the Code because it is not a tax upon the income of the employer who is making the payment.