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ABBOT LABORATORIES INTERNATIONAL CO. v. UNITED STATES

March 26, 1958

ABBOT LABORATORIES INTERNATIONAL COMPANY, A DELAWARE CORPORATION, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Campbell, District Judge.

    Plaintiff, a domestic corporation organized under the laws of the State of Delaware, brings this action for refund of taxes paid by it in respect of its corporate returns for 1946, 1947 and 1948. Plaintiff claims that certain taxes alleged to have been paid by it to the Governments of Argentina and Colombia should be allowed as credits against tax for the years in question under Section 131 of the Internal Revenue Code of 1939 (26 U.S.C.A. § 131). So far as material here, Section 23, dealing with deductions from gross income, provides:
    "In computing net income there shall be allowed as
  deductions:
    "(c)(1) Taxes paid or accrued within the taxable
  year, except — * * *
    "(C) income, war-profits, and excess-profits taxes
  imposed by the authority of any foreign country or
  possession of the United States, if the taxpayer
  chooses to take to any extent the benefits of section
  131;".

So far as material here, Section 131 provides:

    "(a) If the taxpayer chooses to have the benefits
  of this section, the tax imposed by this chapter * *
  shall be credited with:
    "(1) In the case of a * * * domestic corporation,
  the amount of any income, war-profits, and
  excess-profits

  taxes paid or accrued during the taxable year to any
  foreign country * * *".

During the years 1946, 1947, and 1948, plaintiff held a 95 per cent interest in Abbot Laboratories de Argentina, Sociedad de Responsibilidad Limitada (S.R.L.) and Abbot Laboratories de Colombia, S.R.L.

From the common law point of view, a Sociedad de Responsibilidad Limitada, under both Argentine and Colombian law, is a hybrid, possessing some of the characteristics of a partnership and some of the characteristics of a corporation. An exhaustive discussion of its nature is not necessary here. Suffice it to say that it falls squarely within the definition of a corporation under Treasury Regulations 111, (1939 Code) Section 29.3797-4:

    "* * * if an organization is not interrupted by the
  death of a member or by a change in ownership of a
  participating interest during the agreed period of
  its existence, and its management is centralized in
  one or more persons in their representative
  capacities, such an organization is an association
  taxable as a corporation * * *"

During the years 1946, 1947, and 1948, plaintiff received no distribution out of the earnings or profits current or accumulated of the Sociedades in question. Accordingly, plaintiff reported no income from the Sociedades in its 1946, 1947, and 1948 Federal income tax returns. However, plaintiff did report income, in respect of its own activities within Argentina and Colombia, from the sale of goods in those countries and miscellaneous income, as follows:

      From sales etc.      From sales etc.
       in Argentina:        in Colombia:
  1946      $446,016.24     $359,993.68
  1947       699,163.91      400,273.63
  1948       950,343.06      304,040.39

This income was not taxed in Argentina and Colombia. The foreign tax credit sought by plaintiff involves taxes imposed upon the income and patrimony of the Sociedades. It is stipulated that under Argentine and Colombian law, plaintiff was primarily liable for the following taxes attributed to it on the basis of its 95 per cent interest in the Sociedades:

In respect of the Argentine S.R.L.:

Income Tax:

  1946          137,307.03    Pesos
  1947          112,101.67
  1948          200,800.56

In respect of the Colombian S.R.L.:*fn*

Income Tax        Excess Profits Tax    Patrimony Tax
  1946           None                 None            28,267.70  Pesos
  1947            "                    "              13,795.93
  1948       43,805.71  Pesos   23,156.77   Pesos     10,134.54

The above taxes were paid by the Sociedades out of the current profits, except the Colombian patrimony taxes for 1946 and 1947, which were paid out of capital. In addition the ...


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