Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 72-84

1972-1 C.B. 216

Sec. 903

IRS Headnote

The insurance premiums taxes imposed by the Dominion of Canada and the Provinces of Quebec and Ontario qualify as taxes in lieu of income taxes and are, therefore, allowable as a credit against U.S. income tax; Revenue Ruling 58-475 revoked.

Full Text

Rev. Rul. 72-84

Reconsideration has been given to Revenue Ruling 58-475, C.B. 1958-2, 385, in the light of the decisions reached in Prudential Insurance Company of America v. United States, 319 F.2d 161 (1963); Prudential Insurance Company of America v. United States, 337 F.2d 651 (1964), certiorari denied, 386 U.S. 1018 (1967) Equitable Life Assurance Society of the United States v. United States, 366 F. 2d 967 (1966), certiorari denied, 386 U.S. 1021 (1967); Metropolitan Life Insurance Company v. United States, 375 F.2d 835 (1967); and United States v. Occidental Life Insurance Company of California, 385 F.2d 1 (1967).

Revenue Ruling 58-475 holds that an insurance premiums tax paid by insurance companies pursuant to the Corporation Tax Act of Quebec of 1947, 11 George VI, Chapter 33, 1947 (as it stood prior to its amendment by Bill 44, 1957, effective beginning with the financial year in progress on January 1, 1957), does not constitute a tax in lieu of an income tax within the meaning of section 903 of the Internal Revenue Code of 1954, and is, therefore, not allowable as a credit against United States income tax under section 901 of the Code.

Contrary to Revenue Ruling 58-475, the court in each of the above-cited cases held that the Province of Quebec insurance premiums tax paid by life insurance companies with respect to their life insurance business constituted a tax paid in lieu of the Quebec income tax. The court in each of these cases similarly held that the Dominion of Canada and Province of Ontario insurance premiums taxes (except that the Ontario insurance premiums tax was not involved in Occidental) paid by life insurance companies with respect to their life insurance business constituted taxes paid in lieu of the Dominion or Ontario income tax. The rationale of these decisions, based on the history and structure of the taxing statutes of the Dominion and its provinces, was that (1) where an insurance company with respect to a particular line or lines of insurance business (life, accident and health, casualty, etc.) was subject only to an insurance premiums tax imposed by the Dominion or by Quebec or Ontario and exempt from payment of a general income tax under the law of the Canadian jurisdiction imposing such a premiums tax, the insurance premiums tax paid constituted a tax paid in lieu of an income tax within the meaning of section 903 of the Code; and (2) where an insurance company was subject on a particular line or lines of insurance business to both an insurance premiums tax and a general income tax under the law of the Canadian jurisdiction imposing such a premiums tax, the insurance premiums tax paid did not constitute a tax in lieu of an income tax under section 903 of the Code.

For taxable years within the scope of  Revenue Ruling 58-475, insurance companies were subject to the Dominion insurance premiums tax, except (1) in Quebec which imposed its own insurance premiums tax on insurance companies, and (2) in Ontario which, prior to 1952, imposed its own insurance premiums tax on insurance companies. During years that insurance companies were subject to the payment of such Dominion insurance premiums tax, mutual life insurance companies were completely exempt from any generally imposed Dominion income tax, while nonresident stock life insurance companies were exempt from any generally imposed Dominion income tax on their life insurance business, but were subject to such a tax on lines of insurance business other than life (such as, accident and health). During this same period, however, mutual and stock casualty insurance companies were subject to the generally imposed Dominion income tax on their insurance business. For the time period covered by Revenue Ruling 58-475 during which Quebec and Ontario imposed their own premiums taxes, all insurance companies were completely exempt from the generally imposed income tax of those provinces.

Consistent with the above court decisions and for the taxable years covered by Revenue Ruling 58-475, the following insurance premiums taxes imposed by the Dominion of Canada and the Provinces of Quebec and Ontario qualify as taxes in lieu of income taxes under section 903 of the Code and are, therefore, creditable against United States income tax under section 901 of the Code: (1) the entire amount of Dominion insurance premiums taxes paid by mutual life insurance companies on their insurance business, and by stock life insurance companies on their life insurance business; and (2) the entire amount of Quebec and Ontario insurance premiums taxes paid by insurance companies.

Revenue Ruling 58-475, C.B. 1958-2, 385, is hereby revoked.