Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 58-3

1958-1 C.B. 263

Sec. 901

Sec. 903

IRS Headnote

Taxes imposed by the Federal Government of Mexico under the Mercantil Revenue Law of December 30, 1947, as amended, do not constitute income taxes within the meaning of section 901 or taxes in lieu of income taxes within the meaning of section 903 of the Internal Revenue Code of 1954 and are not allowable as a credit under section 901 of the Code.

Full Text

Rev. Rul. 58-3

Advice has been requested whether taxes imposed by the Federal Government of Mexico under the Mercantil Revenue Law of December 30, 1947, as amended, constitute income taxes within the meaning of section 901 or taxes in lieu of income taxes within the meaning of section 903 of the Internal Revenue Code of 1954 and are allowable as a credit under section 901 of the Code.

The translation of the Mercantil Revenue Law of Mexico, dated December 30, 1947, as amended, as submitted by the taxpayer, reads in part as follows:

ARTICLE 1.-The tax on mercantile revenue burdens the revenue obtained from the following sources, in the manner outlined in the following Articles:

I-From the alienation of property.

II-From the leasing of property.

III-From the rendering of services.

IV-From commissions and mercantile mediations.

ARTICLE 2.-`Revenue' is any amount in cash, in property, in services, in securities, in negotiable instruments, in book credits or in other form obtained by parties subject to this tax, as a result of operations taxed by this Law.

ARTICLE 3.-The tax shall be payable on the total revenue from operations taxed by this Law, at the moment such operation is effected, even though it be on an installment or credit plan, including the overprice, interest or any other benefit which increases such revenue.

ARTICLE 10.-The party liable for this tax is the individual or concern habitually receiving revenue from operations taxed by this law or which takes effect within Mexican Territory.  This article was added by Decree of December 27, 1954 in terms which showed applicability of the tax to sales transactions and which permitted the seller to pass on the tax to the buyer or user of the service by adding it to the purchase price or price of services rendered.

ARTICLE 14.-The tax shall be payable at the rate of 18 per mil on the total amount of the taxable revenue.

The Mexican law taxes specified operations form which certain types of receipts are derived, and the liability for the tax arises at the time the operation subject to the tax takes place, whether or not income in the constitutional sense results. Although these receipts are made up at least in part of items which fall within the United States concept of taxable income, the tax apparently is imposed on the transactions rather than on the income derived therefrom. The mercantile tax law is separate and apart from the Mexican income tax law (the Ley del Impuesto sobre la Renta) which has been held by the Internal Revenue Service in several rulings to impose an income tax with respect to certain categories of income. I.T. 3787, C.B. 1946-1, 232; I.T. 3385, C.B. 1940-1, 103; I.T. 3683, C.B. 1944, 290. Payment of the mercantile tax does not relieve a taxpayer from payment of the income tax imposed by the Ley del Impuesto sobre la Renta.

Accordingly, it is held that taxes imposed by the Federal Government of Mexico under the Mercantil Revenue Law of December 30, 1947, as amended, do not constitute income taxes within the meaning of section 901 or taxes in lieu of income taxes within the meaning of section 903 of the Internal Revenue Code of 1954, and, consequently, are not allowable as a credit under section 901 of the Code.