Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-82

1969-1 C.B. 193

Sec. 901

IRS Headnote

The Italian Tax on Bonds is not an income tax or a tax paid in lieu of income tax under sections 901 and 903 of the Code and is not allowable as a foreign tax credit.

Full Text

Rev. Rul. 69-82

Advice has been requested whether the Italian Tax on Bonds (Imposta Sulle Obbligazioni) imposed by Article 156 of Title VIII of the Consolidated Code of Laws on Direct Taxes (Testo Unico Delle Leggi Sulle Imposte Dirette), approved by Presidential Decree No. 645 of January 29, 1958, as supplemented and amended, qualifies as an income tax for purposes of the foreign tax credit provisions of section 901 of the Internal Revenue Code of 1954.

Article 156 of the Consolidated Code of Laws on Direct Taxes (Consolidated Code) provides a tax on bonds and like securities issued in the Italian State by issuers taxable on a balance-sheet basis, as well as by foreign companies and associations operating in Italy through a permanent establishment, even when not taxable on a balance-sheet basis. The tax is payable by the issuers who are entitled to recover it from the bond holders. However, the right of recovery shall not be applicable with respect to the tax relating to bonds issued prior to August 26, 1954.

Article 157 of the Consolidated Code imposes the tax at a rate based on the taxable value of the bonds. Article 157 also provides that the value of the bonds shall be determined on the basis of the latest stock exchange settlement price prior to the closing of the subject's balance sheet or, as regards unlisted bonds or bonds which, while listed, have had no settlement price, on the basis of the face value. Article 158 of the Consolidated Code, in defining taxable values, provides that the tax shall be payable on the aggregate value of the bonds as shown in the issuer's balance sheet, reduced by one-half for the bonds issued in the second half of the fiscal year.

Section 901 of the Code allows a credit against United States tax for foreign income, war profits, and excess profits taxes. In order for a tax paid to a foreign country to qualify as an income tax, however, it must be shown that the tax imposed by the foreign country is a tax on income within the United States concept thereof (Mary D. Biddle v. Commissioner, 302 U.S. 573 (1938), Ct. D. 1303, C.B. 1938-1, 309), or is a tax in lieu of an income tax within the meaning of section 903 of the Code.

In the instant case, the Italian Tax on Bonds bears no relation to the income or profits of the issuer or to the interest payable with respect to the bonds and, therefore, is not an income tax within the meaning of section 901 of the Code, or a tax paid in lieu of an income tax within the meaning of section 903 of the Code. Accordingly, the Italian Tax on Bonds (Imposta Sulle Obbligazioni) is not a creditable tax under section 901 of the Code.