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Columbia Marine Services Inc. v. Reffet Limited

decided: November 2, 1988.

COLUMBIA MARINE SERVICES, INC., INDIVIDUALLY AND ON BEHALF OF A CLASS OF PLAINTIFFS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
REFFET LIMITED, A UNITED KINGDOM CORPORATION, AA MUTUAL INTERNATIONAL INSURANCE CO. LTD., ALBION INSURANCE COMPANY LTD., ALLIANCE ASSURANCE CO. LTD., ALLIANZ INTERNATIONAL INSURANCE COMPANY LTD., ANCON INSURANCE COMPANY (U.K.) LTD., ANDREW WEIR INSURANCE CO. LTD., ATHEL REINSURANCE COMPANY LTD., ATLAS ASSURANCE COMPANY LTD., AVIATION & GENERAL INSURANCE COMPANY LTD., AVON INSURANCE COMPANY LTD., BALTICA-SKANDINAVIA INSURANCE COMPANY (U.K.) LTD., BIMEH IRAN INSURANCE COMPANY (U.K.) LTD., BISHOPSGATE INSURANCE COMPANY LTD., BRITISH AVIATION INSURANCE COMPANY LTD., BRITISH & EUROPEAN REINSURANCE COMPANY LTD., BRITISH AND FOREIGN MARINE INSURANCE COMPANY LTD., BRITISH LAW INSURANCE COMPANY LTD., BRITISH NATIONAL LIFE INSURANCE SOCIETY LTD., BRITISH RESERVE INSURANCE COMPANY LTD., BRITISH TRADERS' INSURANCE COMPANY LTD., BRYANSTON INSURANCE COMPANY LTD., CALEDONIAN INSURANCE COMPANY, CENTURY INSURANCE COMPANY LTD., CHIYODA FIRE & MARINE INSURANCE CO. (U.K.) LTD., CITY INSURANCE COMPANY (U.K.) LTD., CNA REINSURANCE OF LONDON LTD,, COLBOURNE INSURANCE CO. LTD., COLONIA INSURANCE COMPANY LTD., COMMERCIAL UNION ASSURANCE COMPANY LTD., COMMERCIAL UNION PENSIONS MANAGEMENT LTD., COMMUNITY REINSURANCE CORPORATION LTD., CONSOLIDATED MARINE & GENERAL INSURANCE COMPANY LTD., CONTINENTAL REINSURANCE CORPORATION (U.K.) LTD., CO-OPERATIVE INSURANCE SOCIETY LTD., COPENHAGEN REINSURANCE COMPANY (U.K.) LTD., CORNHILL INSURANCE COMPANY LTD., CRUSADER INSURANCE PLC, DAI-TOKYO INSURANCE COMPANY (U.K.) LTD., DART INSURANCE COMPANY LTD., DOLPHIN INSURANCE COMPANY LTD., DOMINION INSURANCE COMPANY LTD., DOWA INSURANCE COMPANY (U.K.) LTD., DRAKE INSURANCE COMPANY LTD., EAGLE STAR INSURANCE COMPANY LTD,, ECCLESIASTICAL INSURANCE OFFICE LTD., ECONOMIC INSURANCE COMPANY LTD., ELDERS INSURANCE COMPANY LTD., ELIZABETHAN INSURANCE COMPANY LTD., EL PASO INSURANCE COMPANY LTD., EMPLOYERS OF WAUSAU INSURANCE COMPANY (U.K.) LTD., ENGLISH & AMERICAN INSURANCE COMPANY LTD., ENGLISH & SCOTTISH MARITIME & GENERAL INSURANCE CO. LTD., ENNIA INSURANCE COMPANY (U.K.) LTD., EQUINE AND LIVESTOCK INSURANCE COMPANY LTD., EXCESS INSURANCE GROUP, FENTON INSURANCE COMPANY LTD., FINE ART & GENERAL INSURANCE COMPANY LIMITED, FINNISH INDUSTRY INSURANCE (U.K.) COMPANY LTD., FOLKSAM INTERNATIONAL INSURANCE COMPANY (U.K.) LTD., FREMONT INSURANCE COMPANY (U.K.) LTD., FUJI FIRE & MARINE INSURANCE COMPANY (U.K.) LTD., GENERAL ACCIDENT REINSURANCE COMPANY LTD., GENERAL AIRCRAFT INSURANCE COMPANY LTD., GUARDIAN ASSURANCE COMPANY LTD., GUARDIAN ROYAL EXCHANGE ASSURANCE LTD., GUILDHALL INSURANCE COMPANY LTD., HANSA GENERAL INSURANCE COMPANY (U.K.) LTD., HANSA MARINE INSURANCE COMPANY (U.K.) LTD., HANSECO (UK) INSURANCE CO. LTD., HEDDINGTON INSURANCE (U.K.) LTD., HOME AND OVERSEAS INSURANCE COMPANY LTD., INDEMNITY MARINE ASSURANCE COMPANY LTD., INSURANCE COMPANY OF NORTH AMERICA (U.K.) LTD., INSURANCE CORPORATION OF SINGAPORE (U.K.) LTD., IRON TRADES MUTUAL INSURANCE COMPANY LTD., KEMPER REINSURANCE LONDON LTD., KOA INSURANCE COMPANY (U.K.) LTD., KOREAN INSURANCE CO. (U.K.) LTD., LEADENHALL INSURANCE COMPANY LTD., LIBERTY MUTUAL INSURANCE COMPANY (MASSACHUSETTS) LTD., LICENSES AND GENERAL INSURANCE COMPANY LTD., LIVERPOOL MARINE & GENERAL INSURANCE COMPANY LTD., LOMBARD INSURANCE COMPANY (U.K.) LTD., LONDON ASSURANCE, LONDON AND EDINBURGH GENERAL INSURANCE COMPANY LTD., LONDON GUARANTEE & REINSURANCE COMPANY LTD., LONDON & HULL MARITIME INSURANCE COMPANY LTD., LONDON AND OVERSEAS INSURANCE COMPANY LTD., LONDON AND SCOTTISH ASSURANCE CORPORATION LTD., LOUISVILLE INSURANCE COMPANY LTD., MALVERN INSURANCE COMPANY LTD., MARINE INSURANCE COMPANY LTD., MARITIME INSURANCE COMPANY LTD., MENTOR INSURANCE COMPANY (U.K.) LTD., MERCANTILE AND GENERAL REINSURANCE COMPANY LTD., MERCANTILE MUTUAL INSURANCE (U.K.) LTD., MERCURY REINSURANCE COMPANY (U.K.) LTD., MINSTER INSURANCE COMPANY LTD., MONARCH ASSURANCE COMPANY LTD., MOTOR UNION INSURANCE COMPANY LTD., M.U. CAMBRIDGE INSURANCE COMPANY LTD., NATIONAL CASUALTY COMPANY OF AMERICA LTD., NATIONAL VULCAN ENGINEERING INSURANCE GROUP LTD., NAVIGATORS & GENERAL INSURANCE COMPANY LTD., THE NEW ZEALAND SOUTH BRITISH INSURANCE P.L.C., NIPPON FIRE AND MARINE INSURANCE COMPANY (U.K.) LTD., NORDEN INSURANCE COMPANY (U.K.) LTD., NORTH ATLANTIC INSURANCE COMPANY LTD., NORTH BRITISH AND MERCANTILE INSURANCE COMPANY LTD., NORTHERN ASSURANCE COMPANY LTD., NORTHERN MARITIME INSURANCE COMPANY LTD., NORWICH UNION FIRE INSURANCE SOCIETY LTD., NORWICH WINTERTHUR REINSURANCE CORPORATION LTD., NRG LONDON REINSURANCE COMPANY, OCEAN ACCIDENT AND GUARANTEE CORPORATION LTD., OCEAN MARINE INSURANCE COMPANY LTD., ORION INSURANCE COMPANY LTD., PACIFIC & GENERAL INSURANCE COMPANY LTD., PARCELS & GENERAL ASSURANCE ASSOCIATION LTD., PEARL ASSURANCE PUBLIC LIMITED COMPANY, PHOENIX ASSURANCE COMPANY LTD., PINE TOP INSURANCE CO. LTD., PLANET ASSURANCE COMPANY LTD., POHJOLA INSURANCE COMPANY (UK.) LTD., PORTSOKEN REINSURANCES LTD., PROVIDENCE CAPITOL LIFE ASSURANCE COMPANY LTD., PROVINCIAL INSURANCE COMPANY LTD., PRUDENTIAL ASSURANCE COMPANY LTD., RELIANCE MARINE INSURANCE COMPANY LTD., RIVER THAMES INSURANCE COMPANY LTD., ROAD TRANSPORT & GENERAL INSURANCE COMPANY LTD., ROYAL INSURANCE COMPANY LTD., ROYAL REINSURANCE COMPANY LTD., ROYAL EXCHANGE ASSURANCE, ST. KATHERINE INSURANCE COMPANY LTD., SAMPO INSURANCE COMPANY (U.K.) LTD., SAN FRANCISCO INSURANCE COMPANY (UK.) LTD., SCAN RE INSURANCE CO. LTD., SCOR (UK.) REINSURANCE COMPANY LTD., SCOTTISH UNION AND NATIONAL INSURANCE COMPANY, SCOTTISH LION INSURANCE COMPANY LTD., SEA INSURANCE COMPANY LTD., SENTRY (UK.) INSURANCE CO. LTD., SOVEREIGN MARINE & GENERAL INSURANCE COMPANY LTD., SPHERE INSURANCE COMPANY LTD., STATE ASSURANCE COMPANY LTD., STERLING INSURANCE COMPANY LTD., STOREBRAND INSURANCE COMPANY (U.K.) LTD., STRONGHOLD INSURANCE COMPANY LTD., SUMITOMO MARINE & FIRE INSURANCE COMPANY (EUROPE) LTD., SUN ALLIANCE AND LONDON INSURANCE LTD., SUN INSURANCE OFFICE LTD., SWITZERLAND GENERAL INSURANCE CO. (LONDON) LTD., TAISHO MARINE & FIRE INSURANCE COMPANY (U.K.) LTD., TERRA NOVA INSURANCE COMPANY LTD., THREADNEEDLE INSURANCE COMPANY LTD., TOBACCO INSURANCE COMPANY LTD., TOKIO MARINE & FIRE INSURANCE COMPANY (U.K.) LTD., TREATY REINSURANCES LTD., TRIDENT GENERAL INSURANCE COMPANY LTD., ULSTER MARINE INSURANCE COMPANY LTD., UNIONAMERICA INSURANCE COMPANY LTD., UNION INSURANCE SOCIETY OF CANTON LTD., UNION MARINE AND GENERAL INSURANCE COMPANY LTD., VESTA (U.K.) INSURANCE CO. LTD., VICTORY INSURANCE CO. LTD., WALBROOK INSURANCE COMPANY LTD., WESTMINSTER FIRE OFFICE, WINDSOR LIFE ASSURANCE COMPANY LIMITED, WORLD AUXILIARY INSURANCE CORPORATION LIMITED, WORLD MARINE & GENERAL INSURANCE COMPANY LTD., WORLD WIDE ASSURANCE COMPANY LTD., YASUDA FIRE & MARINE INSURANCE COMPANY (U.K.) LTD., YORKSHIRE INSURANCE COMPANY LTD., DEFENDANTS-APPELLEES



Appeal from a judgment of the United States District Court for the Southern District of New York (Sprizzo, J.) dismissing, on appellees' Rule 12(b) motion, Columbia Marine's claim to refunded excise taxes under a treaty between the United States and the United Kingdom. Affirmed.

Van Graafeiland, Pierce and Altimari, Circuit Judges.

Author: Van Graafeiland

VAN GRAAFEILAND, Circuit Judge:

Columbia Marine Services, Inc. appeals from a judgment of the United States District Court for the Southern District of New York (Sprizzo, J.) dismissing its class-action complaint against Reffet Limited and certain United Kingdom (U.K.) insurance companies. Columbia sought to recover retroactive refunds of federal excise taxes which Reffet, acting on behalf of appellee insurers, had obtained from the Internal Revenue Service pursuant to an international tax treaty between the United States and the United Kingdom. The district court granted appellees' Rule 12(b) motion to dismiss. We affirm.

Prior to 1975, U.K. insurance companies, not engaged in a trade or business in the United States so as to be subject to federal income taxes, were required to pay a federal excise tax (FET) on all insurance premiums charged to U.S. insureds. See 26 U.S.C. ยงยง 4371-4374; Rev. Rul. 80-225, 1980-2 C.B. 318. In 1975, the United States and the United Kingdom negotiated a treaty in which they agreed to make certain mutual concessions in their taxation of nationals of the other country. Convention between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, 31 U.S.T. 5668, T.I.A.S. No. 9682 (the Treaty). For its part, the United States agreed, among other things, to exempt U.K. insurers from the FET. Because of changes, protocols, and the nature of the ratification process, the Treaty did not enter into force until 1980. However, the FET exemption was made effective with respect to all excise taxes paid after January 1, 1975. Art. 28(2)(b). Consequently, the United States was required to refund the excise taxes which U.K. insurers paid between 1975 and 1980.

The Treaty set December 31, 1983 as the deadline for seeking refunds:

Notwithstanding any provisions of the respective domestic laws of the Contracting States imposing time limits for applications for relief from tax, an application for relief under the provisions of this Convention shall have effect, and any consequential refunds of tax made, if the application is made to the competent authority concerned within three years of the end of the calendar year in which this Convention enters into force.

Art. 28(7). The "competent authority" in the United States is the "Secretary of the Treasury or his delegate," (the IRS). Art. 3(1)(f)(i).

Article 25(1) of the Treaty sets forth a procedure for resolving disputes arising as a result of the Treaty.

Where a resident or national of a Contracting State considers that the actions of one or both of the Contracting States result or will result in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident or national.

Article 25(3) authorizes the competent authorities of each nation to reach agreement with aggrieved parties concerning the attribution of income, deductions, credits or allowances, Art. 25(3)(a),(b), and the meaning of terms not otherwise defined in the Treaty, Art. 25(3)(d).

Following ratification of the Treaty, the IRS established a procedure for refunding the FET collected between 1975 and 1980:

The treaty provisions exempting policies of insurance from the excise tax and providing for refund of such tax were intended to relieve the person that bore the burden of the tax. However, the person who remitted the tax must file the claim on behalf of the person who bore the burden of the tax. The Service understands the general practice in the insurance industry to be that the person required to remit the tax will either subtract the amount of the tax from the premium paid to the foreign insurer or reinsurer, or add the amount of the tax to the premium charged to the insured. Where the person required to remit the tax subtracts the amount of the tax from the premium paid to the foreign insurer or reinsurer and the insured pays only the amount of the premium on which the tax imposed by section 4371 of the Code was computed, the insurer or reinsurer is considered to have borne the burden of the tax and is entitled to the refund. Where the person required to remit the tax adds ...


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