US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit

Charles McLure (), Jack Mintz and George Zodrow ()
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Charles McLure: Stanford University

No 1411, Working Papers from Oxford University Centre for Business Taxation

Abstract: In a recent unanimous decision in the PPL case, the US Supreme Court ruled that a one-timeretroactive British “Windfall Tax” levied on 32 public utilities that were privatised between 1984 and 1996 was eligible for the US foreign tax credit (FTC). The Court rejected the contention of the US Internal Revenue Service that eligibility for the FTC should be governed by the legislative form of the tax rather than its economic substance. This decision could have farreaching implications for the creditability of taxes that are not ordinarily thought to be income taxes, including various cash-flow business taxes that are key elements of several proposals recommending replacement of the income tax with a consumption-based tax. This article examines these issues, arguing that one and arguably both of the most common forms of cash flow consumption-based taxes should be creditable; it also discusses questions that remain about the interpretation of key regulatory requirements that govern creditability.

Keywords: US Supreme Court PPL decision; windfall profits tax; foreign tax credit; cash flow tax; rent tax (search for similar items in EconPapers)
JEL-codes: H25 H8 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mfd and nep-pbe
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Citations: View citations in EconPapers (2)

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