UPDATE 2-U.S. justices rule for PPL Corp in overseas tax case

Mon May 20, 2013 5:21pm EDT

By Lawrence Hurley

WASHINGTON May 20 (Reuters) - The U.S. Supreme Court on Monday ruled for utility PPL Corp in its dispute with the U.S. Internal Revenue Service over credits the company claimed to offset overseas tax payments.

The court ruled on a unanimous vote that Pennsylvania-based PPL can claim $39 million in U.S. foreign tax credits against a 1997 British windfall tax.

Writing on behalf of the court, Justice Clarence Thomas said the "predominant character of the windfall tax is that of an excess profits tax, a category of income tax in the U.S. sense."

At least two other U.S. utilities - Entergy Corp and American Electric Power Co - are in the same position, having been hit by the windfall tax after they acquired British utility companies that were privatized in the 1980s and 1990s.

The IRS had rejected the companies' foreign tax credit claims, arguing that the windfall tax did not meet the definition of a tax for which credits can be claimed.

Foreign tax credits are normally available to U.S. companies so they do not pay the same tax twice at home and abroad.

Two appellate courts had offered different opinions in the dispute, leading the nine-member Supreme Court to intervene to settle the matter.

PPL, backed by the U.S. Chamber of Commerce and the conservative Cato Institute and Goldwater Institute, argued that the windfall tax should be eligible for a foreign tax credit.

"We have held throughout the process that because the UK windfall tax was based on income, it should therefore be creditable against our U.S. income taxes," said Robert Grey, PPL's executive vice president.

An IRS spokesman did not immediately respond to a request seeking comment.

Shares of PPL closed Monday down 1.05 percent at $31.81 on the New York Stock Exchange. The Standard & Poor's 500 Index was down 0.07 percent.

Next week, the court is likely to act on a companion case involving Entergy that has been pending while the PPL case was decided. Entergy, which seeks a credit of almost $234 million in relation to the same UK windfall tax, had won at the appeals court level. The high court is expected to dismiss the subsequent appeal of that ruling filed by the IRS.

In reference to the UK tax, Stephen Gardner, Entergy's lawyer, said the Supreme Court had made a "simple statement about whether or not it's an income tax."

The high court ruling is not likely to have far-reaching consequences in other contexts, he added.

Separately, AEP filed a brief in the PPL case in support of the utility, saying it is currently involved in a similar dispute with the IRS.

U.S. multinational companies claimed $93.5 billion in foreign tax credits in 2009, the most recent IRS figure.

The case is PPL Corp v. Commissioner of Internal Revenue, U.S. Supreme Court, No. 12-43.

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