CCA 201052017: An Algerian gross-basis levy did not qualify as an income tax or an in-lieu tax

Plain-English summary

Chief Counsel Advice considered whether Algeria's Exceptional Profits Tax qualified for treatment under IRC §§ 901 or 903. The advice states that the levy appeared to be based on gross income and therefore was not an income tax under section 901. It also rejects combining that levy with a separate income tax to create an alternative tax regime under section 903, even though the regulations allow certain multiple levies to be combined. The conclusion was based on the levy being a later, additional tax rather than a substitute for the generally applicable income tax.

Ruling snapshot

• Question: Could Algeria's Exceptional Profits Tax qualify as an income tax or an in-lieu-of tax under IRC §§ 901 or 903?
• Outcome: Advice given
• Key authorities: IRC §§ 901 and 903; Treas. Reg. § 1.903-1(b)(3), Example (4)

Full text (IRS public release)

ID: CCA_2010100710533013 Number: 201052017
Release Date: 12/30/2010
Office: ------------------
UILC: 901.01-03

From: ------------------------
Sent: Tuesday, May 11, 2010 7:47 AM
To: --------------------
Cc: -----------------------------------------------
Subject: RE: Algerian exceptional profits tax. ---------

It appears that the base of the Algerian Exceptional Profits Tax is gross income. As such it cannot be an income tax under section 901. Since taxpayer is paying an income tax and this non-income tax is in addition to and not in lieu of an income tax, our position is that it cannot qualify under section 903, as an in lieu of tax. Some taxpayers have argued that an income tax and a non-income tax in combination can qualify as an alternative tax regime in lieu of the income tax imposed on other business sectors. Although the regulation example, 1.903-1(b)(3), Example (4), allows multiple levies to be combined we interpret this example to allow only non-income taxes to be combined. We do not accept this argument that taxpayers can combine an income tax and a non-income tax. Here, taxpayer argument’s to combine the levies is weakened by the fact that this gross basis tax was introduced at a later time, after the income tax had been in effect for some time. Plus, the income tax they pay is the generally applicable income tax. If the only difference in the generally applicable tax others pay and the tax the dual capacity taxpayer pays is the applicable rate, it's not a separate levy under the regulations.

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