677 F.2d 72 | Ct. Cl. | 1982
Inland Steel Company, an integrated steel manufacturer, claimed refunds for taxes paid for calendar years 1964 and 1965 on four issues, two of which have been compromised and dismissed.
I.
Supplemental Unemployment Benefit Plan — Revised Savings and Vacation Plan.
This court has twice considered whether certain accruals under Inland’s Supplemental Unemployment Benefit (SUB) plan may be deducted under I.R.C. §162.
In 1962, the SUB plan was revised to provide increased benefits, a larger contribution per hour worked, and accruals to CL were made noncancelable. As revised, the 1962 SUB plan required a contribution of 9.5 cents, of which 4.5 cents were cash payments to the trust, and 5 cents accrued to an account, which (although the accruals could not be canceled for any reason whatsoever) continued to be referred to as the Contingent Liability account. The definition of maximum financing was changed to permit expanded benefits, but the obligation to accrue 4.5 cents per hour worked per covered employee continued after maximum financing was reached. Accruals in excess of the requirements of maximum financing were a part of the CL account and were noncancelable except to pay benefits under the SUB plan; for convenience these accruals in excess of maximum financing were separately reported in Inland’s accounts and wére commonly referred to as Additional Contingent Liability (ACL).
Since 1962, the Internal Revenue Service has challenged unsuccessfully, on different theories, the deductibility of accruals to the Contingent Liability accounts of the 1962 SUB plans. This court, in Inland I, held that accruals to CL in 1962 and 1963 met the "all events” test of I.R.C. § 461; Inland II so holds for 1964 and 1965. Lukens Steel holds that the CL accruals were deductible when accrued in 1962 and 1963 because they were irrevocably committed to pay for benefits even though the time of payment was indefinite, so also with Reynolds Metals for 1962 and 1963; Cyclops for 1962 through 1966; and Timken for 1962 and 1963.
The 1962 negotiations included institution of a plan to provide additional savings and vacation benefits. The 1962 Savings and Vacation Plan (SVP) was financed by an accrual of 3 cents per hour worked by employees covered by the plan into a Financial Availability Account (FAA). The negotiators recognized the 1962 SVP was inadequate to
The 1962 SVP, in addition to the 3 cent accrual, provided that up to 4.5 cents per hour worked by covered employees (which were the same employees covered by the SUB plan) could be transferred from ACL to the FAA to the extent required to provide SVP benefits.
The restructured RSVP that became effective on January 1,1964, was financed from accruals to the FAA, which were increased (from the SVP’s 3 cents) to 12.5 cents per hour worked by covered employees after December 31, 1963. The 12.5 cents per hour accrual was established jointly by the negotiators as adequate to assure payment over the 5-year term of the significantly expanded list of basic benefits the companies were obligated to provide. In order to accelerate provision of basic benefits to the senior group, which otherwise would be spaced over 5 years, and increase job openings by earlier and additional vacations, the RSVP authorized transfers of ACL from the SUB plan to the FAA. ACL so transferred, referred to as "spillover”, amounted to 3.125 cents per hour worked after December 31, 1963; in exceptional circumstances (which did not occur) up to 4.5 cents could spillover. The RSVP also provided that all spillover amounts would be returned to ACL after all basic benefits had been financed and the 12.5 cents accrual to the FAA exceeded current RSVP requirements. The amounts returned, referred to as "splashback,” ranged from 6.5 cents
Basic benefits guaranteed in the RSVP included both vacation benefits that could be taken currently and financial benefits that could be put in a trust and deferred until retirement.
In fiscal year 1964, Inland accrued $1,331,270 in the CL account, of which $1,321,719 was in excess of SUB maximum financing (ACL). In fiscal year 1965, Inland accrued $1,346,527 in the CL account, of which $1,338,440 was in excess of SUB maximum financing (ACL).
Accruals to the CL account that were required to attain maximum financing were not available for paying out benefits under the RSVP and plaintiff was granted summary judgment in Inland II that such amounts qualified for deduction under I.R.C. § 162. Amounts of ACL that spilled over to the FAA between January 1, 1964, and April 30, 1965, were immediately paid out either to the employee or into the trust for deferred benefits. Inland has claimed and received tax deductions for all such spillover amounts on a payment basis and no such amounts are involved in' this case. Accruals to ACL for which Inland now claims entitlement to a deduction (for 1964 or 1965) are amounts which were not used to pay any benefits under the RSVP.
b. Discussion. The Government invokes the provisions in I.R.C. §404 which generally foreclose a taxpayer’s payments of deferred compensation from immediate deduction under § 162, and permit them to be taken into account only when actually made to or for the benefit of the recipient. See Raybestos Manhattan, Inc. v. United States, 220 Ct. Cl. 224, 597 F.2d 1379 (1979). On that premise, defendant urges: (1) the entire spillover portion of ACL is an integral part of RSVP; (2) the whole of RSVP, including the spillover from ACL, is and was represented by taxpayer as a plan for deferred compensation (under § 401) to which §404 is applicable; and accordingly (3) the spillover sums now at issue cannot be deductible in the taxable years. There is much controversy over the components of the first
The stark facts are that by December 31, 1965, Inland had accrued sufficient amounts in the FAA (available for RSVP) to provide splashback of all amounts previously spilled over from the Additional Contingent Liability account (ACL) in 1964 and 1965; and by February 1, 1966, Inland’s splashback account had returned to the SUB ACL all amounts that had been spilled over to finance RSVP benefits. All of the other 10 major steel companies that constituted the Coordinated Committee Companies in the collective bargaining negotiations returned on or before April 30, 1967, pursuant to the splashback provisions, all amounts that had spilled over to RSVP financial accounts.
The result was that in this case spillover was never needed for the RSVP benefits, and if initially used as an advance was shortly paid back via splashback to ACL.
Defendant traces its conclusion that accruals to the SUB ACL account are nevertheless not deductible under I.R.C. § 162 to limitations in Treasury Regulations (on the income tax) that are designed to reach potential contingencies, especially the provision in Treas. Reg. § 1.162-10(a) (1960) that precludes deduction under I.R.C. § 162(a) if "under any circumstances” the monies may be used to provide benefits under deferred compensation plans of the type referred to in I.R.C. § 404(a).
In this instance, there was no such reasonable possibility of these spillovers being used for RSVP benefits during the term of the RSVP plan. Our findings (fdgs. 38(a), 39(c)) show that the RSVP was deliberately intended by the parties to
We hold, on this ground, that the spillover sums involved here were not used or reasonably subject to be used for RSVP benefits, and are therefore deductible under § 162.
II
Ontario Mining Tax
Plaintiff conducted an iron ore mining operation in Atikokan, Ontario, in 1964 and 1965 through a wholly-owned subsidiary, Caland Ore Company, Limited (Caland).
Caland paid taxes on its mining operation under the Ontario Mining Tax Act
In addition to its OMT tax payments, in 1964 and 1965, Caland was subject to and paid income taxes to Canada, under the Income Tax Act of Canada, and to Ontario under the Ontario Corporation Tax Act. Plaintiff has obtained I.R.C. § 901 foreign tax credit for the amounts paid pursuant to those income tax laws.
The tax credit in I.R.C. §901
I.R.C. § 901(b)(1) provides an exemption from taxation to the extent of the tax paid to the foreign country. It is a privilege extended by legislative grace, and the exemption must be strictly construed.
a. The test. In Bank of America,
This review of the pertinent judicial decisions and Internal Revenue Service rulings, as well as of comparable gross income levies in the federal income tax system, persuades us that the term "income tax” in § 901(b)(1)*326 covers all foreign income taxes designed to fall on some net gain or profit, and includes a gross income tax if, but only if, that impost is almost sure, or very likely, to reach some net gain because costs or expenses will not be so high as to offset the net profit.
In that case, the special banking levies did not qualify for the credit because no provision was made to account for the costs or expenses of producing the income. The tax would fall on banks that were successful as well as those that were unsuccessful. Failure to take into account operating expenses normal to an active business indicated the governments involved had not designed the taxes to "nip” net profit.
The court’s analysis in Bank of America shows that it is important, for the foreign tax credit, to determine the expenses of which the foreign tax takes account, in order to see whether taxation of net gain is the ultimate objective or effect of that tax. For instance, a gross income tax on mining royalties was creditable when the taxpayer did not operate the mine and retained only a royalty right under its contract with the operator. In such a situation, no costs or expenses of the taxpayer to obtain the royalties would over balance them and the taxpayer would not suffer a deficit on the royalty transaction even if the mining operations went badly. Similarly, a Mexican tax on receipts in the form of interest or rents was creditable because such interest and rents, taxed at the source, are rarely, if ever, wholly offset by the taxpayer’s costs or expenses of obtaining that type of income; a Brazilian tax on gross earnings from interest and dividends was creditable because that type of passive investment income involved few or no expenses of production.
On the other hand, when the income came from an active asbestos quarry, a tax that restricted allowable deductions to costs incurred in mining operations only, with no deductions for expenses incident to the general conduct of the business, was not creditable.
Problems of that type are what we have to consider here. Caland’s income subject to the OMT is generated in the conduct of an iron ore mining business. Creditability of the OMT under I.R.C. § 901 requires a determination that the deductions normally or essentially incident to the general conduct of that business are available in computation of the OMT liability so as to assure that the tax applies only to the net gain produced by the business.
b. Operation of OMT. Unlike the Canadian federal and provincial income taxes, which are administered by their respective revenue departments, the OMT is administered by ministries concerned with mining and natural resource regulation.
The OMT profit is determined by deducting specified mining expenses from the gross revenue from production. The mine assessor considered the mining operation to end, under the OMT, when the ore passed through the primary crusher, even if the crusher were located underground.
The OMT provides three methods to compute gross revenue from mine production: (1) when unprocessed ore is shipped from the mine site, the gross revenue is the amount received from sales; (2) if the ore is processed at the mine, the gross revenue is "the amount of the actual market value of the output at the pit’s mouth”; (3) if the ore is processed at the mine, and there is no means of ascertaining such actual market value, the gross revenue is the "amount at which the mine assessor appraises such output.”
The computation authorized in method No. 2 was an administrative shortcut that in practice was utilized by the
Caland’s gross revenue reported on its 1964 OMT return was computed as authorized by method No. 1; its gross revenue for 1965, when it produced both unprocessed and processed ore, was calculated as permitted in method No. 3. Caland’s original 1965 OMT return included a valuation for unsold ore in inventory. On review, the mine assessor required, the return to be amended to eliminate that value. The administrative procedure to appraise the value of output at pit’s mouth in method No. 3 followed by the mine assessor’s office included in gross revenue only the proceeds of ore and pellets actually sold during the year. No valuation was placed on ore in inventory but unsold at year-end.
The mine assessor generally followed a standard procedure in a method No. 3 appraisal of the value of output at the pit’s mouth. This procedure involved deduction from the sale price of the processed product of: (1) costs of processing and marketing; (2) a portion of head office expenses allocable to processing; (3) an allowance for depreciation of processing plant; and (4) an allowance for a processing profit. The processing profit allowance was an arbitrary 8 percent of original cost of processing assets, but not less than 15 percent or more than 65 percent of the profits of the combined mining and processing operations before deduction of the allowance itself.
The OMT lists ten categories of expenses and allowances that may be deducted from the proceeds attributable to the extraction activity. These deductions include transportation costs, working expenses (including office overhead) directly connected with the mining operation, depreciation of mining plant, and certain exploration and development costs incurred anywhere in Ontario following commencement of production.
In addition to mine operating expenses excluded by the mine assessor, the OMT specifically did not permit to be used in the computation of OMT profit: a deduction for interest or dividends on capital, royalty payments to private parties, depletion of mineral resources, and certain preproduction exploration and development expenses. Ca-land incurred preproduction exploration and development expenses, at its Atikokan mine from the inception of development, of approximately $30.8 million (Can.), of which $7.3 million (Can.) were eligible for deduction. Caland’s royalty payment to Steep Rock Iron Ore Company of $3,448,376 (Can.) in 1964 and $4,172,673 (Can.) in 1965, were not included in the computation of OMT profits for those years. Caland’s interest expenses of $1,842,293 (Can.) in 1964 and $1,831,836 (Can.) in 1965 for financing the mining venture were not included in the computation of OMT profit for those years. Caland’s 1964 and 1965 computation of OMT profits did not include an allowance for the physical depletion of its mineral resource.
c. History and purpose of OMT. The OMT is a formu-lary tax that nominally and structurally is designed to reach a particular type of net profit derived from a statutorily circumscribed business activity — the extractive phase of a mining operation. The tax is a hybrid type of tax, with both income tax and property tax features. It is structured and administered to allow a formulary profit that is designed to overcome Canadian constitutional limitations and to simplify administration of collection burdens. The historical development of the OMT, and its present position in the Canadian tax structure, support the
In the Canadian system, the federal government is authorized to raise money by any mode or system of tax, and may levy both direct and indirect taxes. Provincial governments derive their taxing powers from the 1867 British North American Act, and are empowered to levy only direct taxes within the province in order to raise revenue for provincial purposes.
In a purely economic analysis, the distinction between a direct and an indirect tax is blurred. Every traditionally indirect tax would have some persons who are the first and final payers, and, conversely, every direct tax may on occasion be shifted to another. The Canadian courts, however, in order to have a concept of general application, have abandoned a strict economic analysis and have applied a simplified expression of the classical definition. The judicial test is that a direct tax is intended to be borne by the person on whom imposed and the payer of an indirect tax is supposed to indemnify himself at the expense of another.
Before confederation, the Province of Ontario imposed a royalty, an indirect tax, on the value of ores raised or mined. In 1907, Ontario introduced a tax on profits derived
The "net profit” that is reached by the OMT is based exclusively on the mining activity and is an artificial concept utilized to satisfy the requirements of Canada’s tax system. An official report by the Ontario Committee on Taxation in 1967 (the Smith report), noted the hybrid nature of the OMT and the omission of various elements that normally enter a calculation of profit. According to the Smith report, "[o]ne fundamental criticism” of the OMT is that its nature is not clear. "It is neither a tax on actual profits, because of the severe limitation on deductions, nor a royalty. The present position seems to have been reached by a process of arbitrary decision-making rather than as a logical result of basic principles.”
The Smith report notes that Ontario had adopted a profits tax to assure classification as a "direct tax” on the operator, because a province is constitutionally unable to impose a royalty on mineral production on private land. The OMT was distinguished from a royalty reserved to the Crown. The report concluded: "In order to impose a constitutionally valid royalty on mineral production, the whole basis of land tenure for mining companies in Ontario would have to be changed.” The Smith report accepted the concept of a profits tax because it is "probably better suited than a royalty to obtain a revenue from a high-risk industry, inasmuch as, unlike a royalty, it does not tend to convert a marginally successful mine into a loser.”
B. C. Lee, Comptroller and Mine Assessor, Ontario Department of Mines, and responsible for the administration of the OMT in 1964 and 1965, was of the opinion that the OMT "is levied on the mine much the same as a property tax is levied on the assessed value of a building and its land.” He concluded that the OMT was not in fact an income tax "although a certain artificial profit is arrived at to determine the tax base.”
d. Application of the test to OMT. As we have held in Part II, C, supra, the OMT was not actually intended to parallel a United States income tax. The question then is: did it nevertheless have the effect of falling on some net gain? In calculating it, significant costs were not taken into account, but taxpayer contends that these omissions fail to show that net gain was very unlikely to be reached.
Plaintiff first claims the OMT is a creditable foreign income tax because it is restricted to income from a particular source — mining—and a full array of deductions for expenses incident to the general conduct of that specialized activity assures that the tax falls only on net income. In plaintiffs view, deductions for interest, depletion and royalty payments to private parties would not be appropriate and are not allowed in the OMT because they are not expenses incurred in earning the particular class of income intended to be taxed. Such financial items, plaintiff
Plaintiff compares the OMT to the "schedular” taxes utilized in some foreign countries. In such taxes, income from different sources or activities is segregated into different "schedules” and taxed under separate rules and rate tables. Plaintiff also points to the United States withholding taxes in I.R.C. §§871 and 881 as a direct parallel with the OMT. Withholding taxes, according to plaintiff, are creditable and are comparable to the OMT in that a particular type of income is taxed after deduction of operating expenses but without restriction for the financial items — interest, royalties, depletion — that represent a distribution of operating income.
In Bank of America, this court discussed domestic withholding taxes in I.R.C. §§ 871 and 881 in its consideration of taxes analogous to taxes on gross income.
Plaintiffs comment on the court’s analysis of Santa Eulalia
The answer, in our view, is that, even if these observations might be true for some of the individual items, taken singly, that Ontario holds to be nondeductible, when the mass of the omitted items in the OMT are considered together and in combination as applied to plaintiffs mining business, it is clear to us that that tax does not seek to reach, or necessarily reach, any concept of net gain from the mining business which would be recognized as such in this country. It is as if a very large chunk of the outlays of that business had been shaved off, and only a fraction left, out of which "net gain” is to be found. The exclusions are far too widespread and important to permit the conclusion that some net gain is sure to be reached.
It may be (as we are told by one witness) that every company paying the tax had some true net gain, but that
This disharmony is quite understandable. Where, as in the OMT, such essentials as land and rental expenses are omitted,
Moreover, plaintiffs attempt to separate mine operating costs from financing expense draws too fine a line. A separate corporation whose sole business was the operation of a single mine could not compute a net profit if it did not include all of its expenses relevant to its business. As a unit in a diversified and complex corporate structure, direct costs for Caland’s particular mining activity can be separated conveniently from financing expenses relevant to that activity. Unlike the situation in a single business activity, the mining expenses plaintiff labels "financing” or "profit-sharing,” rather than being general operating expenses of Caland’s business, can be shifted to some other phase of plaintiffs corporate operations. Plaintiffs corporate interrelationships permit accounting flexibility but they are not determinative of whether Caland’s operations in Canada produced profit for purposes of an I.R.C. §901 credit. Allocation of amounts for corporate general overhead and expenses is the bane of all corporate managers
Finally, there is the problem of the taxation of unsold inventory. Plaintiff concedes that § 3 — (3)(b) of the OMT allows the mine assessor to tax unsold gold and gypsum held in inventory, but would have the creditability issue determined by the administrative practice applicable to iron ore and all other minerals. The mine assessor, except for gold and gypsum, imposed the tax only on OMT profits that resulted from actual sales. Plaintiff labels the gold and gypsum treatment a de minimis variation of the mine assessor’s consistent practice, which, in the normal case computed a profit number from the value of ore that had actually been sold.
Resort to the administrative practice of the mine assessor is not necessary or controlling. The OMT in § 3 — (3)(b) expressly provides a method for the mine assessor to value processed minerals that are "not sold” at the actual market value of the output at the pit’s mouth. Under this authority, for ores which "had an actual market value” the mine assessor was empowered to impose a tax on OMT profits from any type of production that had been placed in inventory and was not sold. This authority, in fact, was used for gold and gypsum, minerals that account for 10 percent of Ontario’s total production in the review years. The OMT in its structure and express provisions thus permits the tax to be imposed on unrealized income, a generally impermissible result for an income tax in the United States sense.
The sum of it is that, from several viewpoints and in several aspects, taxpayer has failed to show that the OMT fits our concept of an income tax, or the concept spelled out in Bank of America, supra. The foreign tax credit under I.R.C. § 901 is therefore not allowable. This failure to permit a credit for payments made by Caland under the OMT will not result in double taxation because the OMT profit is not
CONCLUSION OF LAW
Upon the findings and the foregoing opinion, the plaintiff is entitled to deductions in 1964 and 1965 for all amounts of Contingent Liability accrued in those years under its Supplemental Unemployment Benefit plan, and judgment is entered to that effect. Plaintiff is not entitled to foreign tax credits in those years for payments under the Ontario Mining Tax Act. Plaintiffs claim on the Ontario Mining Tax Act issue is dismissed and the remainder of the case is remanded to the Trial Division for further proceedings under Rule 131(c) to determine the amount of refund due.
Order September 10, 1982 entered judgment for plaintiff for $1,423,122 in taxes, plus $748,208 in assessed interest plus statutory interest.
This opinion has its basis in that of Trial Judge Harkins, with several modifications, deletions, additions, and rearrangements. We reach the same results.
The court adopts the trial judge’s findings of fact, with the changes indicated in the order entered this day, but the findings are not reproduced with this opinion. Any findings contained in this opinion that are not also embodied in the formal findings shall likewise be considered part of the court’s findings.
The issue concerning plaintiffs relationship with the jointly owned Wabush Pellet Co. was dismissed with prejudice on May 2, 1978; the placed-in-service issue relative to certain construction projects at the Indiana Harbor Works, East Chicago, Indiana, was dismissed with prejudice on Dec. 12, 1979.
Internal Revenue Code of 1954, as amended; Income taxes codified in 26 U.S.C. §§ 1-1564 (1976).
Both rulings were on motions for summary judgment. Qualification of accruals for 1962 and 1963 was ordered on Nov. 26, 1976, and reported in Inland Steel Co. v.
Inland I & II, supra note 3; Lukens Steel Co. v. Commissioner, 52 T.C. 764 (1969), aff’d, 442 F.2d 1131 (3d Cir. 1971); Cyclops Corp. v. United States, 408 F. Supp. 1287 (W.D. Pa 1976); Reynolds Metals Co. v. Commissioner, 68 T.C. 943 (1977); Timken Co. v. United States, 218 Ct. Cl. 633, 78-2 U.S.T.C. ¶ 9653 (1978).
Article XVII (Savings and Vacation Plan) Section 2 (Financing) of the April 6, 1962, Agreement between Inland and the Steelworkers Union (before the June 29, 1963, amendment) included in part the following provisions:
"There shall be an added accrual to the Financial Availability Account of amounts made available in the following manner:
"(1) For the month of July, 1962, and each month thereafter, if under the SUB Plan the amount required to raise total finances to maximum financing is less than the Company’s maximum monthly obligation under that Plan, there shall be available for accrual an amount calculated by multiplying the total hours worked by employees covered by this Savings and Vacation Plan in such month by the lesser of (a) 4.5 cents and (b) the difference between 9.5 cents and the amount per contributory hour required to raise total finances of the SUB Plan to maximum financing.
"(2) The accrued amount determined in (1) above shall in no event be in excess of the amount required to provide (a) benefits to individuals then entitled because of retirement to benefits based on their retirement units and vacation units and (b) vacation benefits to employees having at least one full vacation unit as of the current or next preceding Calculation Date.
"(3) Any amounts which would have been accrued to the Financial Availability Account pursuant to (1) above except for the provision of (2) above, and which were therefore added to the total finances of the SUB Plan, and which have not been used for payment of benefits under that Plan, shall be accrued to the Financial Availability Account and deducted from the total finances of the SUB Plan to the extent then needed for the provision of retirement and vacation benefits.”
Transfers from SUB contingent liability to the financial availability account of Lukens Steel savings and vacation plan were described as follows:
"In addition the 1962 SUB plan provided that contingent liability, to the extent that it was not needed to achieve maximum financing of the SUB plan and in an amount not to exceed 4.5 cents per hour worked by employees covered by the savings and vacation plan, shall be added to financial availability account of the savings and*319 vacation plan in an amount which would cover employee benefits accumulated under that plan. Amounts of Contingent Liability not utilized by the savings and vacation plan in the manner stated above were to be returned to the SUB plan to be made available for SUB plan benefits and also for future savings and vacation plan benefits to the extent assets or credit available to the savings and vacation plan financial availability account were insufficient to finance accumulated employee benefits. The contingent liability amounts so returning to the SUB plan were to be ignored in calculating petitioner's periodic obligation to make payments or credits to the SUB plan.” Lukens Steel, 52 T.C. at 783 n.6.
Controverted issues include: (1) the exact relationship of ACL to the SUB and RSVP plans; (2) the relationship of SUB and RSVP to each other; (3) whether RSVP benefits were all deferred compensation, or only in incidental part; (4) whether plaintiff represented to the IRS, or the IRS ruled, that all RSVP payments would represent deferred compensation or come under a profit-sharing plan.
It would be irrelevant to the purposes of the spillover-splashback mechanism, as well as the objectives of the special provisions for taxation of deferred compensation, to apply here, formalistically, the rule of "first in, first out” which is generally used where it is necessary to differentiate among different payments.
Defendant emphasizes that Treas. Reg. § 1.404(a)-l(a)(l) (1963) makes § 404(a) applicable to "any plan” of deferred compensation, that Treas. Reg. § 1.404(a)-l(a)(2) (1963) notes that § 404(a) allows deductions under certain plans that are "solely” for a particular purpose, and that Treas. Reg. § 1.404(aMl)(a)(3) (1963) specifies that if contributions to a deferred compensation plan "can be used” to provide "any” such benefits, § 404(a) applies to the "entire contribution” to the plan.
As well as the other regulatory references in note 9, supra.
The funding mechanism of RSVP (without spillover) was designed to pay for all the benefits payable under that plan, with a 25% cushion. Conversely, the ACL (including the amounts which could spillover) was primarily to be devoted to the SUB benefits.
As was said by Judge Laramore in Hudspeth v. United States, 471 F.2d 275, 277 (8th Cir. 1972), for a different problem, "the realities and substance of the events must govern our determination, rather than formalities and remote hypothetical possibilities.”
As our findings show, spillover was eliminated by the end of 1968. After that time, amounts of ACL would not be loaned, used or spent for RSVP benefits. There was no reasonable possibility, at the beginning of the RSVP plan, of these monies thereafter being used for RSVP benefits. The fact that subsequently, in the 1968 negotiations, the parties newly agreed that the funds remaining in the ACL should then be paid as vacation bonus in 1969 (after the term of the 1962 plan) does not show that any such deferred-compensation use was reasonably foreseeable or likely when the RSVP was earlier adopted. At that earlier time, all that was likely is that the unused ACL would not be returned to taxpayer, but it was wholly unknown what kinds of benefits the money would be used for.
Ont. Rev. Stat. c. 242 (1960).
Plaintiffs petition also sought credit under I.R.C. § 903 for the OMT payments. This issue has not been pursued and is considered to be abandoned.
26 U.S.C. § 901(b)(1) (1976) provides a credit to United States income taxpayers for the "amount of any income, war profits and excess profits taxes paid or accrued during the taxable year to any foreign country. . . .”
Treas. Reg. § 1.901-2(b) (1960).
Biddle v. Commissioner, 302 U.S. 573 (1938); Missouri Pacific R.R. v. United States, 183 Ct. Cl. 168, 175, 392 F.2d 592, 597 (1968); Allstate Ins. Co. v. United States, 190 Ct. Cl. 19, 27, 419 F.2d 409, 413-14 (1969).
Keasbey & Mattison Co. v. Rothensies, 133 F.2d 894, 898 (3d Cir.), cert. denied, 320 U.S. 739 (1943).
New York & Honduras Rosario Mining Co. v. Commissioner, 168 F.2d 745, 749 (2d Cir. 1948).
Commissioner v. American Metal Co., 221 F.2d 134, 137 (2d Cir.), cert. denied, 350 U.S. 829 (1955).
Bank of America Nat’l Trust & Sav. Ass’n v. United States, 198 Ct. Cl. 263, 459 F.2d 513, cert. denied, 409 U.S. 949 (1972).
Id. at 281, 459 F.2d at 523.
Bank of America Nat’l Trust & Sav. Ass’n v. United States, supra, 198 Ct. Cl. at 276, 459 F.2d at 520, analyzing Santa Eulalia Mining Co. v. Commissioner, 2 T.C. 241 (1943); and 198 Ct. Cl. at 279, 459 F.2d at 522, analyzing I.T. 2620,11-1 Cum. Bull. 44 (1932) and I.T. 4013,1950-1 Cum. Bull. 65.
Keasbey & Mattison Co. v. Rothensies, supra, 133 F.2d at 897-98.
The Canadian income tax is administered by the Canadian Department of National Revenue; the Ontario income tax is administered by the Ontario Ministry of Revenue; the OMT in 1964 and 1965 was administered by the Ontario Department of Mines and, at the time of trial by the Ministry for Natural Resources, Mineral Resources Branch.
Caland’s 1965 processing allowance on its amended return was 15 percent of the combined profits allowed for its mining and processing operations.
The British North American Act, 1867, section 92, provides:
"In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subject next herein-after enumerated; that is to say,—
"2. Direct Taxation within the Province in order to the raising of a Revenue for
Provincial Purposes.”
Nickel Rim Mines, Ltd. v. Attorney General for Ontario, 53 D.L.R. 2d 290, 294 (1965), citing and quoting Bank of Toronto v. Lambe, 12 App. Cas. 575 (1887). The definition, by John Stuart Mill, quoted with approval was:
"Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another; such are the excise or customs.
"The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.”
Id. at 292.
The Ontario Committee on Taxation, (1967), c. 32, ¶ 37.
Smith report, c. 32, ¶¶ 6,38, and 39.
The Smith report states in ¶ 47:
"The major amount of Ontario’s iron ore production is thus used for steel-making by the mine operator, the United States parent or some other affiliate of the mine operator, and so the burden of the mining profits tax falls at least initially upon the steel manufacturer either directly as the mine operator or indirectly as the shareholder of the mine operator. Because of the competitive conditions existing in the steel industry there can be no shifting in the short run, and since the proportion of the total requirements of U.S. mills filled from Ontario ore is so small it is doubtful that the tax would have any significant effect upon the price of steel in the United States, even in the long run.”
Speech of B. C. Lee, "Provincial Taxation,” Canadian Tax Foundation Eighteenth Annual Tax Conference 89, Nov. 23-25,1964.
Bank of America Nat’l Trust & Sav. Ass’n v. United States, supra, 198 Ct. Cl. at 280-81, 459 F.2d at 523.
Bank of America Nat’l Trust & Sav. Ass’n v. United States, supra, 198 Ct. Cl. at 276, 459 F.2d at 520, commenting on Santa Eulalia Mining Co. v. Commissioner, 2 T.C. 241 (1943), appeal dismissed, 142 F.2d 450 (9th Cir. 1944).
Including land and rent expenses not centered on the ore itself.
Plaintiff points to the court’s remarks in Bank of America (supra, 198 Ct. Cl. at 273, 459 F.2d at 519) that reference should be made to the "actual system historically utilized by Congress in imposing domestic income taxes” to support its contention that administrative practice should control rather than theoretical construction. Plaintiffs reference is not apposite because the court did not refer to an administrative interpretation of statutory authority. The court gave preference to actual Congressional enactments over theoretical and potential tax schemes that were constitutionally permissible but which Congress had declined to use.