Rev. Rul. 63-51

Advice has been requested whether a taxpayer, who is a citizen of Belgium and a resident of the United States, may claim as a credit against United States income tax the Belgian taxe mobiliere and contribution nationale de crise under the circumstances described below.

The taxpayer received income as a life beneficiary of a testamentary trust established in Belgium. This income represented dividends received by the trust from a Belgian corporation. The Belgian corporation paid the Belgian taxe mobiliere on dividends under Article 34, Laws referring to taxes on income, coordinated on January 15, 1948, Moniteur Belge, January 21, 1948. Les Cordes Belges, Volume 5, page 290 (Matieres Fiscales) Brussels, 1961. It deducted the amount of such tax from the dividends paid to the trust. The taxpayer received the net dividends through the trust.

The corporation also paid the contribution nationale de crise% i with respect to the dividends imposed in the Laws regarding the Contribution Nationale de Crise, coordinated on January 16, 1948, Moniteur Belge, January 21, 1948. Les Cordes Belges, Volume 5, page 337 (Matieres Fiscales) Brussels, 1961. However, under Belgian law, it could not recoup the amount of that tax from the shareholder.

The answer to the question depends upon whether the Belgian taxes in question are imposed upon and `paid' by the corporation or by the shareholder within the meaning of United States internal revenue laws.

Section 901(a) of the Internal Revenue Code of 1954 provides for the allowance of a credit against United States income taxes for income taxes paid or accrued to a foreign country or a possession of the United States. Subsection (b)(3) thereof provides, in part, as follows:

(b) AMOUNT ALLOWED.-Subject to the limitation of section 904, the following amounts shall be allowed as the credit under subsection (a);

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(3) * * * In the case of an alien resident of the United States * * * the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country; * * *.

Article XII(2) of the United States-Belgium Income Tax Convention, T.D. 6160, C.B. 1956-1, 815, provides that in accordance with section 131 of the Internal Revenue Code of 1939 (sections 901-905 of the 1954 Code), the United States agrees to allow as a credit the appropriate amount of taxes paid to Belgium, whether paid directly by the taxpayer or by withholding. Article XII(3) of the convention contains the concessions made by Belgium to take into account Federal income taxes collected in the United States.

In general, in accordance with the provisions and limitation of sections 901 and 904 of the Code, respectively, a Belgian national residing in the United States is entitled to a credit against his United States income tax for income taxes paid to Belgium on income from sources within that country, provided he does not claim the standard deduction or use the tax table in computing his tax liability. See section 504.116(b) of T.D. 6160, supra , and Revenue Ruling 59-85, C.B. 1959-1, 188.

Under the Belgian tax system, the taxe professionnele, taxe mobiliere , and contribution nationale de crise are imposed upon the profits of a Belgian corporation. In the case of stock corporations, the taxe professionnele applies to the amount of profits diminished by the amount of such profits subject to the taxe mobiliere . The taxe mobiliere applies to the gross amount set aside for distribution as dividends, interest, and other products of capital invested in companies having their main office or principal administrative establishment in Belgium. While Belgian corporations are required to pay the taxe mobiliere , they have the right to retain the amount of the tax out of the payment of the dividend, etc. The contribution nationale de crise is imposed at the same time and in the same manner as the taxe mobiliere , except that there is no provision for the right of the corporation to recoupment.

In the case of Mary Duke Biddle et al. v. Commissioner , 302 U.S. 573 (1938), Ct. D. 1303, C.B. 1938-1, 309, the Supreme Court of the United States had before it the British Income Tax Act of 1918, which prescribed general rules for the assessment and collection of taxes on profits from property, trade, or business. General Rule 20 of that Act provided that the standard tax was to be paid on the full amount of the profit before any dividend thereof was paid in respect of any share and that a corporation paying such a dividend was entitled to deduct the tax appropriate thereto. In their British returns the taxpayers in that case reported the actual amount of the dividends actually received, plus the amount of the tax `appropriate' to the dividends. In their United States returns, the taxpayers reported the gross amount of the dividends and claimed a credit for the standard tax under section 131(a)(1) of the Revenue Act of 1928.

In holding that the taxpayers were not entitled to the credit, the Court stated that the decision must turn on the precise meaning of the words `income taxes paid.'

It was observed that under the British tax system corporate earnings are subject to a single standard tax at the source, and that double taxation of the corporate income is avoided as it passes to the hands of its stockholders, except that they are subject to the surtax which the corporation does not pay. The corporation pays the standard tax and the remedies for nonpayment run against it.

In comparing the United States internal revenue laws with the British tax system, the Court stated as follows:

* * * Although the tax burden of the corporation is passed on to its stockholders with substantially the same results to them as under the British system, our statutes take no account of that fact in establishing the rights and obligations of taxpayers. * * * they have never treated the stockholder for any purpose as paying the tax collected from the corporation. Nor have they treated as taxpayers those upon whom no legal duty to pay the tax is laid. * * *

Like the British standard tax `appropriate' to dividends, the taxe mobiliere has its impact directly upon the corporation. There is no personal shareholder liability for the tax, even if the corporation fails to pay it. Therefore, the tax is imposed upon the corporation, although the tax burden is passed on to the shareholder. The fact that the taxpayer-corporation may retain the amount of the taxe mobiliere out of the amount distributed is merely the recognition by Belgium that the shareholder has the economic burden of the tax and does not mean that legal liability for the tax is on the shareholder.

Thus, the question herein considered is distinguishable from the case where a taxing statute provides in effect that the shareholder is liable for the tax and that the payor-corporation is merely a collection agent. See Wisconsin Gas & Electric Co. v. United States , 322 U.S. 526 (1944), Ct. D. 1609, C.B. 1944, 522.

With respect to the contribution nationale de crise , the shareholder is not personally liable for the tax and his dividends are not diminished by any right of recoupment of the corporation as a result of paying the tax. The legal impact of the tax is directly upon the corporation and the corporation also bears the economic burden. Consequently, the tax is imposed upon the corporation.

Unlike Article XIII(1) of the income tax convention between the United States and the United Kingdom, T.D. 5569, C.B. 1947-2, 100, Article XII(2) of the United States Belgium Income Tax Convention, supra , does not change the effect of the Biddle decision. Article XII(2) of the Belgian convention merely contains the words `whether paid directly by the taxpayer or by withholding,' whereas Article XIII(1) of the United Kingdom convention specifically provides that a recipient of a dividend paid by a resident corporation of the United Kingdom shall be `deemed' to have paid the United Kingdom income tax appropriate to the dividend if the recipient elect to include the amount of the tax in his United States gross income. See Revenue Ruling 54-533, C.B. 1954-2, 210.

Accordingly, it is held that the taxpayer may not claim credit against his United States income tax for the Belgian taxe mobiliere or the contribution nationale de crise , since those taxes are imposed upon Belgian corporations and not upon the shareholders.

However, only the amount of the dividends actually received by the taxpayer is includible in his gross income.