ABSTRACT
In May 2013, the U.S. Supreme Court decided PPL Corp. & Subsidiaries v. Comm'r to resolve a split between the Third and Fifth Circuit Courts of Appeals regarding whether the U.K. windfall tax constitutes a creditable tax under Internal Revenue Code (IRC) Section 901. The results of this case have policy implications reaching far beyond a one-time foreign tax credit of $488 million for the three U.S. companies affected. In the Supreme Court decision on the U.K. windfall tax, the justices affirmed the substance over form approach to the net gain criteria in the Treasury Regulations and, thus, agreed that the foreign taxes should be creditable in this case. However, the justices left open the interpretation of the predominant character test, leaving unresolved issues regarding how this test should be interpreted in future cases and, specifically, what effect outliers may have on future interpretations of the foreign tax credit regulations. Thus, the purpose of this paper is to describe the origins of the U.K. windfall tax; highlight the Tax Court, Circuit Courts of Appeals, and Supreme Court decisions; and discuss the potential consequences for future tax policy stemming from this issue.
Decisionmaking in the U.S. Circuit Courts of Appeals