Rev. Rul. 74-525

The Internal Revenue Service has reconsidered the position set forth in Rev. Rul. 63-51, 1963-1 C.B. 407, concerning the creditability of the Belgian taxe mobilier against United States income tax.

The Belgian taxe mobilier is part of the schedular tax system in effect in Belgium prior to 1963. After 1962, it was eliminated and a new tax on dividends, known as the Belgian precompte mobilier, was enacted.

The taxe mobilier is imposed by withholding on the gross distribution of certain types of proceeds from invested capital such as dividends and interest. When current profits are distributed currently in the form of a dividend, the payor corporation must withhold a taxe mobilier on the gross amount of the distribution. If the payor distributes only a part or none of such profits currently, it must pay a taxe professionelle on the gross amount retained. If such profits are then distributed in a subsequent year, the payor will withhold the full taxe mobilier and then, deduct from this amount the taxe professionelle paid by it in a previous year with respect to those distributed profits. The balance of the taxe mobilier is paid into the Belgian Treasury.

Subject to section 904 of the Internal Revenue Code of 1954, section 901 allows certain persons to claim a credit against their United States income tax for foreign income, war profits, and excess profits taxes paid or accrued, or deemed to have been paid or accrued during the taxable year.

Section 902(a)(1) of the Code states, in pertinent part, that a domestic corporation owning at least 10 percent of the voting stock of a foreign corporation other than a less developed country corporation and from which it receives dividends in any taxable year, shall be deemed to have paid for such year the same proportion of any foreign income taxes paid or accrued by that foreign corporation on or with respect to the accumulated profits (as defined in section 902(c)(1)(A)) out of which the dividends are paid, that the amount of such dividends bears to the amount by which such accumulated profits exceed the foreign taxes so paid or accrued.

Section 78 of the Code states, in pertinent part, that an amount equal to the amount of foreign taxes deemed to have been paid by a domestic corporation under section 902(a)(1), for such taxable year, shall be treated as a dividend received by such domestic corporation for Federal income tax purposes.

Both section 902(a)(1) and section 78 of the Code are effective for any distribution received after 1964, and in respect of any distribution received by a domestic corporation before 1965, in a taxable year of such corporation beginning after 1962, but only to the extent that such distribution is out of accumulated profits for a taxable year beginning after 1962.

Prior to its amendment in 1966, Article XII(2) of the United States-Belgium Income Tax Convention, T.D. 6160, 1956-1 C.B. 815, stated that in accordance with section 131 of the Internal Revenue Code of 1939 the United States agreed to allow as a credit against the income taxes imposed by the United States the income taxes, the national crisis tax, and the personal complementary tax paid to Belgium.

Rev. Rul. 63-51 held, in part, that the Belgian taxe mobilier is an income tax imposed upon Belgian corporations rather than their shareholders because it is distinguishable from a taxing statute that provides, in effect, that the shareholder is liable for the tax and the payor-corporation is merely a collection agent, citing Wisconsin Gas & Electric Co. v. United States, 322 U.S. 526 (1944), 1944 C.B. 522. After reconsideration of the tax in question it is concluded that the taxe mobilier as applied to dividends is, in reality, an income tax imposed on the shareholder-recipient of those dividends while the taxe professionelle is an income tax imposed on the corporate payor.

Accordingly, it is held that the Belgian taxe mobilier may be claimed as a direct credit against United States income tax by the recipient of the dividends to the extent provided in section 901(a) of the Code. The amount of that credit is further limited to that portion of the taxe mobilier that is withheld and actually paid over by the corporation into the Belgian Treasury. However, an eligible recipient may claim an indirect credit under section 902, for any taxe professionelle paid with respect to the profits out of which the dividends were paid.

It is further held that in accordance with section 78 of the Code, and subject to its effective date, any taxe professionelle deemed to have been paid with respect to the dividends received is includible in the recipient's gross income.

Rev. Rul. 63-51 is hereby modified in accordance with the above.

For taxable years after December 31, 1962, see Rev. Rul. 74-526, below, with respect to the PRECOMPTE mobilier.