Rev. Rul. 80-4

ISSUE

Is a payment to the Netherlands Antilles pursuant to the election described in Rev. Rul. 65-16, 1965-1 C.B. 626, a payment made pursuant to a legal liability for purposes of the foreign tax credit provided in section 901(b) of the Internal Revenue Code? LAW

Rev. Rul. 65-16 holds that a Netherlands Antilles corporation electing to be taxed under Article 8A of the National Ordinace on Profit Tax of 1940 of the Netherlands Antilles, as added by the National Ordinance of December 30, 1963, may be entitled to the tax benefits that are accorded by Articles VII, VIII, and IX of the United States-Netherlands Income Tax Convention, 1950-1 C.B. 92, as extended to the Netherlands Antilles, 1956-2 C.B. 1116.

Section 901(b) of the Code generally allows qualifying United States taxpayers to claim a foreign tax credit for the amount of any income taxes paid or accrued during the taxable year to any foreign country subject to certain limitations.

Section 902(a) of the Code provides generally that domestic corporations owning at least 10 percent of the stock of a foreign corporation from which it receives dividends paid out of accumulated profits shall be deemed to have paid a certain portion of any creditable foreign income tax paid or deemed to have been paid by such foreign corporation on or with respect to such accumulated profits.

For purposes of claiming a credit under section 901(b) of the Code for the payment or accrual of an amount to a foreign government, such payment or accrual must constitute a tax liability to the foreign government. See Rev. Rul. 76-215, 1976-1 C.B. 194. Only the taxpayer liable for the tax may claim a credit under section 901 and only in the amount for which the taxpayer is liable. See Rev. Ruls. 72-370, 1972-2 C.B. 437 and 59-101, 1959-1 C.B. 189. When a credit is being claimed pursuant to section 902(a) by a domestic parent corporation for amounts paid or accrued to a foreign government by its foreign subsidiary, such amounts must also constitute a tax liability to the foreign government. A payment of an amount to a foreign government that is not made pursuant to a legal tax liability could be a contribution to such government rather than a payment of a tax. See Rev. Rul. 76-508, 1976-2 C.B. 225.

HOLDING

A payment to the Netherlands Antilles pursuant to the election described in Rev. Rul. 65-16 will be considered a payment made pursuant to a legal liability for purposes of the foreign tax credit provided in section 901(b) of the Code under the United States-Netherlands Income Tax Convention as extended to the Netherlands Antilles.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 65-16 is amplified.