By Lawrence Hurley
WASHINGTON May 20 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
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.