Rev. Rul. 57-62

Advice has been requested whether the tax imposed by section 178 of the National Internal Revenue Code of the Republic of the Philippines is allowable as a credit against United States income taxes under the provisions of section 901 of the Internal Revenue Code of 1954.

Section 178 of the Philippine Code provides that `A privilege tax must be paid before any business or accupation hereinafter specified can be lawfully begun or pursued. The tax on business is payable for every separate or distinct establishment or place where business subject to the tax is conducted; and one occupation or line of business does not become exempt by being conducted with some other occupation or business for which such tax has been paid. * * *' Sections 192 and 195 of the Philippine Code set forth the provisions under which the privilege tax is applicable to the taxpayer in the instant case.

Section 192 of the Philippine Code provides, in part, that `Keepers of garages, transportation contractors, persons who transport passengers or freight for hire, and common carriers by land, air, or water, except owners of bancas, and owners of animal-drawn two-wheeled vehicles, shall pay a tax equivalent to two per centum of their gross receipts: Provided , that those whose gross receipts do not exceed two hundred pesos each quarter shall be exempt from the payment of the tax provided for in this section.'

Section 195 of the Philippine Code provides, in part, that `Stock, real estate, commercial, customs, and immigration brokers shall pay a percentage tax equivalent to six per centum of the gross compensation received by them. Cinematographic film owners, lessors, or distributors shall pay a percentage tax of two per centum of their gross receipts.'

In order for a tax paid to a foreign country or possession of the United States to be allowable for credit against United States income taxes, it must be shown that such tax is a tax on income, war profits, or excess profits within the meaning of section 901 of the Internal Revenue Code of 1954, or is a tax imposed in lieu of such a tax within the meaning of section 903.

Under the provisions of section 178 of the Philippine Code, set forth above, a tax is imposed on the privilege of carrying on or doing business or conducting an occupation and is payable as a condition of doing business or conducting an occupation. As applied to a business referred to in sections 192 and 195 of the Philippine Code, the amount of such tax is measured by a percentage of the gross receipts of the business. Such tax is payable whether or not income, as defined for United States tax purposes, is realized. Payment of such tax does not relieve a taxpayer from payment of the income tax imposed by Title II of the Philippine Code.

Accordingly, it is held that the privilege tax levied under section 178 of the National Internal Revenue Code of the Republic of the Philippines is not an income, war profits, or excess profits tax, or a tax imposed in lieu of such taxes, for which a credit is allowable under the provisions of section 901 of the Internal Revenue Code of 1954. See Elias Mallouk et al. v. Commissioner , 34 B.T.A. 269.