Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 79-93

1979-1 C.B. 243

Section 901
Section 904
Section 907

IRS Headnote

Foreign tax credit carryover; Libyan surtax. Surtax paid or accrued under Article 14(1)(a) of the Libyan Petroleum Law No. 25 of 1955 for taxable years beginning prior to July 1, 1978, that are properly deemed to be paid or accrued in taxable years beginning after July 1, 1978, pursuant to sections 907 and 904 of the Code, will be treated as income tax within the meaning of section 901(b) in the years to which they are carried; Rev. Rul. 78-63 amplified. (Also Sections 901, 907.)

Full Text

Rev. Rul. 79-93

Are amounts paid or accrued to Libya as surtax under Article 14(1)(a) of the Libyan Petroleum Law No. 25 of 1955, as amended through January 1, 1975 ("Petroleum Law") for taxable years beginning prior to July 1, 1978, that are properly deemed to be paid or accrued in taxable years beginning after July 1, 1978, pursuant to sections 907 and 904 of the Internal Revenue Code of 1954, treated as income, war profits, or excess profits taxes within the meaning of section 901(b) of the Code in the years to which they are carried?

FACTS

The taxpayer, a United States corporation that uses and has used the calendar year as its taxable year at all relevant times, is in the business of exploring for, developing, and producing crude oil and natural gas in the country of Libya.

Pursuant to the Article 14(1)(a) of the Petroleum Law and Clause 8(1)(a) of the Second Schedule to that law, the taxpayer paid amounts to Libya as surtax for taxable year 1978 and prior taxable years, which exceeded the amounts allowable as foreign tax credits under sections 907 and 904 of the Code. The amounts paid in 1978 to Libya also exceeded the amounts allowable in 1977 and 1976 by reason of the limitations under sections 907 and 904. To the extent provided in sections 907 and 904, certain of the amounts paid in 1978 which could not be utilized in 1977 and 1976 can be carried to taxable year 1979.

LAW AND ANALYSIS

Subject to the limitations contained in sections 901 through 908, section 901(a) of the Code permits domestic corporations to claim a credit for income taxes paid or accrued to foreign countries.

Section 907(a) limits the amount of oil and gas extraction taxes which are allowable in applying section 901 by a formula based on a taxpayer's foreign oil and gas extraction income. Section 907(f) provides that certain amounts of the oil and gas extraction taxes paid by a taxpayer which exceed the limits set forth in section 907(a) shall be deemed to be oil and gas extraction taxes paid or accrued in the two preceding or five succeeding taxable years as provided in section 907(f).

Section 907(b) of the Code provides that the provisions of section 904 shall be applied separately with respect to a taxpayer's foreign oil related income. Section 904(c) provides for a carryback of two years and a carryover of five years of the amount of income taxes paid to a foreign country for any taxable year that exceeds the limitation provided by section 904(a).

Rev. Rul. 78-63, 1978-1 C.B. 228, holds that the surtax imposed on oil companies by Article 14(1)(a) of the Petroleum Law is not a creditable income tax for purposes of section 901 of the Code. However, pursuant to the authority contained in section 7805(b), Rev. Rul. 78-63 provides that it will be applied prospectively only to amounts paid or accrued to Libya for taxable years beginning on or after July 1, 1978. Rev. Rul. 78-63 revoked Rev. Rul. 68-552, 1968-2 C.B. 306, which held that the surtax was a creditable income tax for purposes of section 901. Thus, amounts paid or accrued to Libya as surtax for taxable years beginning prior to July 1, 1978, will be treated as creditable income taxes for purposes of section 901 by reason of section 7805(b).

Because amounts of Libyan surtax for taxable years beginning prior to July 1, 1978, are treated as income taxes within the meaning of section 901(b) of the Code, these amounts will also be treated as creditable income taxes for purposes of computing the amounts which may be deemed paid in a preceding or succeeding year pursuant to section 907(f) and section 904.

Amounts paid or accrued to Libya as surtax under Article 14(1)(a) of the Libyan Petroleum Law No. 25 of 1955, as amended through January 1, 1975 for taxable years beginning prior to July 1, 1978, that are properly deemed paid or accrued in taxable years beginning after July 1, 1978, pursuant to sections 907 and 904 of the Code, will be treated as income taxes within the meaning of section 901(b) of the Code in the years to which they are carried.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 78-63 is amplified.