Rev. Rul. 83-85

1983-1 C.B. 188.

                       Internal Revenue Service
                                 Revenue Ruling

                FOREIGN TAX CREDIT;  SWISS NATIONAL DEFENSE TAX

                            Published: June 13, 1983

SECTION 960. - -SPECIAL RULES FOR FOREIGN TAX CREDIT, 26 CFR 1.960-1: Foreign tax credit with respect to taxes paid on earnings and profits of controlled foreign corporations

  Foreign tax credit;  Swiss National Defense Tax.  For purposes of computing the foreign tax credit under section 960 of the Code for a tax year in which a controlled foreign corporation incurs a net loss, the Swiss National Defense Tax accrues in each calendar year for which the tax is assessed, regardless of the amount of the corporation's earnings and profits, if any, in the year of assessment.  Rev. Rul. 76-39 amplified.

ISSUE

  Do the rules of Rev. Rul. 76-39, 1976-1 C.B. 206, apply to the computation of the foreign tax credit under section 960 of the Internal Revenue Code for a tax year in which the controlled foreign corporation incurs a net loss?

FACTS

  The facts are as stated in Rev. Rul. 76-39. In addition, because of unfavorable business conditions in 1970 (year 6 of its existence) S, a controlled foreign corporation incorporated in Switzerland, had a deficit in earnings and profits.  For the 1970 assessment year § paid the Swiss National Defense Tax based on the average of § 's net profits for 1967 and 1968, the computational period.

LAW AND ANALYSIS

  In Rev. Rul. 76-39, the Service considered what amount of the Swiss National Defense Tax was creditable under section 960 of the Code.  Under the facts set forth in that revenue ruling, the Swiss corporation had earnings and profits for each of the five years at issue.  Rev. Rul. 76-39 states that, in order to determine the amount of the Swiss National Defense Tax which is creditable for a particular year under section 960 of the Code, it must be determined when the Swiss National Defense Tax for that particular year accrues.  The ruling holds that the Swiss National Defense Tax accrues in each calendar year for which the tax is assessed.

  Accordingly, § 's Swiss National Defense Tax liability, which accrues in 1970 and which is based on the average of § 's net profits for 1967 and 1968, will be deemed to have been paid in 1970, regardless of the amount of § 's earnings and profits, if any, in 1970.

HOLDING

  The rules stated in Rev. Rul. 76-39 apply for purposes of computing the foreign tax credit under section 960 of the Code for a tax year in which the controlled foreign corporation incurs a net loss.

  This ruling applies only to that portion of the Swiss National Defense Tax that is creditable under section 960 of the Code. See Rev. Rul. 69-446, 1969-2 C.B. 150 as modified by Rev. Rul. 74-82, 1974-1 C.B. 181.

EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 76-39 is amplified.

Rev. Rul. 83-85, 1983-1 C.B. 188.