CCA 201103041: Counsel considers whether Algeria's surplus tax is a creditable foreign income tax

Plain-English summary

Chief Counsel considered whether an Algerian surplus tax was the same as a petroleum exceptional profits tax and whether that levy could qualify for a foreign tax credit. The analysis states that a tax imposed on gross income would not be an income tax under section 901, and that it could not qualify as an in-lieu-of tax under section 903 when imposed in addition to the generally applicable income tax. The advice also rejects, on the stated facts, combining an income tax and a non-income tax as an alternative tax regime. The available materials did not establish whether the surplus tax and exceptional profits tax were the same levy, so the email does not reach a definitive conclusion about the surplus tax itself.

Ruling snapshot

• Question: Could Algeria's surplus or petroleum exceptional profits tax qualify as a creditable foreign income tax?
• Outcome: Advice given
• Key authorities: IRC §§ 901 and 903; Treas. Reg. § 1.903-1(b)(3)

Full text (IRS public release)

ID: CCA_2010120811353213 Number: 201103041
Release Date: 1/21/2011
Office: ------------------
UILC: 901.01-03

From: ------------------------
Sent: Wednesday, December 08, 2010 11:35:34 AM
To: -------------------------------------------------------------------- Cc: Subject: Algeria Surplus Tax

In May I sent an email to -------, the text of which is as follows, which based on information supplied by ----
---------------------I opined that the Algeria Exceptional Profits Tax imposed on entities engaged in petroleum activities would not be a creditable income 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 arguments 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.

From the materials I have, it is not clear that the Surplus Tax is the same tax. I have not been able to find any information specifically discussing a surplus tax. I have attached a brief summary of Algerian Corporate Tax prepared by IBFD (last revised in March 2010). Obviously, this write-up may not reflect the law in 2008 because there may have been changes to the corporate tax after 2008 (-----------------------------
--------------).

Following are two cites to the Algerian income tax law (in French): http://lexalgeria.free.fr/cdi.htm http://www.mf.gov.dz/codes/impots/impots1.htm Apparently, the Petroleum exceptional profits tax was enacted as part of a petroleum law and not as part of the income tax law so it is likely the exceptional profits tax is not incorporated into the income tax law. If the Surplus Tax and the Exceptional Profits tax are one and the same then it likely will not be reflected in the income tax.

It is possible that the Library of Congress may have information on the "surplus tax". Let me know if you want me to check. I am not sure how long it will take to get a response from them.

------