Rev. Rul. 67-187

Advice has been requested whether the Special Refundable Tax on certain corporations and trusts imposed by the Dominion of Canada falls within the United States concept of an income, war profits, or excess profits tax for the purpose of either section 164(a)(3) or section 901(b)(1) of the Internal Revenue Code of 1954. Inquiry has also been made whether refunds of such tax and interest received in connection with such refunds are includible in gross income under section 61 of the Code.

The Special Refundable Tax was enacted by Canada on July 15, 1966. This five-percent tax is imposed, for the tax period commencing May 1, 1966, and ending October 31, 1967, on the `cash profits' (after tax profits, plus certain adjustments). Refunds of the tax, with interest at the rate of five percent per annum, are to be made by the Canadian Government within 18 to 36 months after the later of the due date or the date of payment of such tax.

Section 901(b)(1) of the Code allows as a credit against United States income tax under certain circumstances, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to a foreign country, subject to the applicable limitations of section 904 of the Code.

Except as otherwise provided in section 164 of the Code, section 164(a)(3) allows a deduction for the amount of foreign income war profits, and excess profits taxes paid or accrued during the taxable year.

The tax in question is in the nature of a compulsory loan, repayable with interest within a specified time. Refund of the tax is essentially the repayment of a loan by the Government of Canada to the taxpayer. It has been consistently held that such a tax is not a foreign tax which may be credited against Federal income tax under section 901 of the Code. See I.T. 3624, C.B. 1943, 438; Rev. Rul. 59-70, C.B. 1959-1, 186; and Rev. Rul. 60-56, C.B. 1960-1, 274.

Accordingly, the Special Refundable Tax imposed by Canada is not an income, war profits, or excess profits tax within the meaning of either section 901(b)(1) or section 164(a)(3) of the Code and is neither allowable as a credit against United States income tax under section 901(a) of the Code nor deductible under section 164(a)(3) of the Code.

Also, refunds of the tax by Canada are not includible in gross income. However, interest received in connection with such refunds must be included in gross income pursuant to section 61 of the Code.