Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the New York City Banking Corporation Tax is a creditable tax for FTC purposes?
Position:
Yes if based on entire net income or alternative entire net income. No where the measure is total assets or issued capital stock.
Reasons:
We have given similar opinions involving somewhat similar franchise tax at the state level.
XXXXXXXXXX
962086
XXXXXXXXXX David R. Senécal
Attention: XXXXXXXXXX
August 12, 1996
Dear Sirs:
Re: New York City ("NYC") Banking Corporation Tax Law
The International Tax Directorate has requested that we reply to your facsimile of May 23, 1996, wherein you request our department's opinion as to whether certain taxes paid by XXXXXXXXXX to NYC pursuant to the Banking Corporation Tax Law ("BCTL") - Subchapter 3 of Chapter 6 of Title 11 of the NYC Administrative Code, would qualify as "income or profits" taxes which are creditable for foreign tax credit purposes, provided that they meet the other requirements of section 126 of the Income Tax Act (the "Act").
Our understanding of the legislation, as it relates to a Canadian chartered bank, is as follows:
-The BCTL imposes a tax on every banking corporation, including those organized under the laws of another country, for the privilege of doing business in NYC.
-A corporation which is doing business both within and without NYC is entitled to allocate its entire net income, alternate entire net income, taxable assets, and issued capital stock within and without NYC. Each allocation percentage (except the issued capital stock allocation percentage) is determined by a formula consisting of a payroll factor, a receipts factor and a deposits factor.
-The basic tax is measured by entire net income, or the portion thereof allocated to NYC, and is the measure of the tax unless the computation of the alternate minimum tax (based on the largest of three alternative minimum bases) produces a greater amount of tax. The basic tax rate is nine percent. More specifically, the Banking Corporation Tax is computed as being the largest of the following amounts:
a) 9% of the taxable entire net income allocated to NYC;
b) 3% of the taxable alternative entire net income allocated to NYC;
c) In the case of corporations organized under the laws of the U.S. or any of its states, .01% of taxable assets allocated to NYC.
d) In the case of corporations organized under the laws of a country other than the U.S., .26% of issued capital stock allocated to NYC.
-A taxpayer's "entire net income" is the total income from all sources, which is the same as the taxable income which the taxpayer is required to report to the United States Treasury Department for purposes of the Federal income tax imposed by chapter one of the Internal Revenue Code with certain adjustments. These adjustments include such things as adding back NY State and NYC taxes deducted on the U.S. federal tax return, any income exempt from Federal taxable income under any treaty obligation of the U.S. and dividends and interest on any kind of stock, securities or other indebtedness which are effectively connected with the conduct of a trade or business in the U.S. but which are excluded from Federal taxable income.
-The "alternative entire net income" is based on the entire net income except that certain of the deductions permitted in arriving at the entire net income , such as interest and other income from subsidiary capital, are not allowed.
-A corporation which has an "International Banking Facility" (IBF) located in New York State may, in lieu of the deduction for the adjusted eligible net income of such facility, elect on an annual basis to reflect the results of the IBF operations in its entire net income allocation percentage and in its alternative entire net income allocation percentage.
-The "total assets" of a taxpayer means the average value of those assets which are properly reflected on a balance sheet, the income or expenses of which are properly reflected in the computation of the taxpayer's alternative entire net income or in the computation of the eligible net income of the taxpayer's IBF for the taxable year.
-"issued capital stock" is calculated based on the face value of the taxpayer's issued capital stock on the last day of the taxable year. In the case of shares without par value, the actual or market value of the shares is used. If the actual or market value is less than U.S. $5 per share, a U.S. $5 per share value must be used.
In our opinion, in taxable years where the taxpayer's Banking Corporation Tax liability is computed by reference to the basic tax measured on taxable entire net income of the taxpayer allocated to NYC or is computed by reference to the alternative minimum tax measured by alternative entire net income allocated to NYC, the tax would be an "income or profits tax" for the purposes of the definition of "business-income tax" as contained in subsection 126(7) of the Act and would be creditable for foreign tax credit purposes provided it met the other requirements of section 126.
To the extent that the Banking Corporation Tax is computed in a particular taxable year by reference to the alternative minimum tax measured by the issued capital stock of the taxpayer allocated to NYC (which appears to be the only other alternative in the case of banking corporations organized under the laws of a foreign country), it is our view that the tax would not be an "income or profits" tax and would therefore not be creditable. However, the tax would be deductible pursuant to paragraph 18(1)(a) of the Act as being an outlay or expense incurred for the purpose of gaining or producing income from business or property.
The above comments represent our general views with respect to the subject matter of your enquiry. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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