Supreme Court rules on foreign taxes

[JURIST] The US Supreme Court [official website] ruled [opinion, PDF] Monday in PPL Corp. v. Commissioner [SCOTUSblog backgrounder] that a UK "windfall tax" is creditable under US tax law. Internal Revenue Code §901(b)(1) [text] states that any "income, war profits, and excess profits taxes" paid overseas are creditable against US income taxes. In 1997, the UK imposed a one-time "windfall tax" on 32 UK companies privatized between 1984 and 1996. In an opinion by Justice Clarence Thomas, the court held that the UK tax is creditable under §901:

The economic substance of the UK windfall tax is that of a US income tax. The tax is based on net income, and the fact that the Labour government chose to characterize it as a tax on the difference between two values is not dispositive under Treasury Regulation §1.901-2. Therefore, the tax is creditable under §901.
The court reversed the decision [opinion] of the US Court of Appeals for the Third Circuit. Justice Sonia Sotomayor filed a concurring opinion.

In this case, PPL Corporation was attempting to qualify for a foreign tax credit for paying a "windfall tax" in the UK, where they own a 25 percent stake in a utilities company. PPL's attorney, Paul Clement, argued [JURIST report] for a traditional, formalistic approach to evaluate the windfall tax, which he argued imposed double taxation on PPL as the windfall tax was evaluated as a tax on "value" rather than a tax on profits, although it determined value solely by surveying profits. The US Solicitor General argued against this understanding.

 

About Paper Chase

Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

© Copyright JURIST Legal News and Research Services, Inc., 2013.