By Jonathan Stempel and Patrick Temple-West
WASHINGTON, Oct 29 (Reuters) - The U.S. Supreme Court said
on Monday it will take the rare step of considering a tax case,
one with hundreds of millions of dollars at stake and broad
implications for companies with businesses abroad an d for the
Internal Revenue Service.
The court agreed to hear an appeal by PPL Corp, a
Pennsylvania-based utility and energy holding company, in a case
addressing when a company can claim U.S. tax credits to offset
taxes it has already paid to a foreign government.
The case is being watched by a range of U.S. utility
companies, including American Electric Power Co Inc and Entergy
Corp, bu t the foreign tax credit question extends well beyond
the power business.
A Supreme Court win for the IRS would give the agency more
authority to challenge foreign tax credit claims where the law
may be vague, said Jerold Cohen, a partner at law firm
Sutherland Asbill & Brennan LLP and a former IRS chief counsel.
"The issue is relevant to any international company," Cohen
said. "The (Supreme) Court takes very few tax cases."
PPL is appealing a December 2011 decision by the 3rd U.S.
Circuit Court of Appeals in Philadelphia. In a related dispute,
t h e 5th U.S. Circuit Court of Appeals in New Orleans ruled in
June 2012 in favor of Entergy.
Both cases involve tax credits claimed by utility companies
after they paid a "windfall tax" imposed by the United Kingdom.
U.S. utility companies acquired stakes in 32 UK power
companies when they were privatized in the 1980s and 1990s.
In response to a public backlash in the UK that the
privatized companies had been sold too cheaply, the British
government imposed one-time windfall taxes on those companies.
U.S. companies that had to pay the windfall tax claimed foreign
income tax credits from the IRS.
But the IRS rejected their claims, saying the windfall taxes
were based not on the British companies' profits, which could be
credited, but on their unrealized value, which could not.
PPL had recorded a $39 million expense in the fourth quarter
of 2011 because of the 3rd Circuit ruling and Entergy could owe
$239 million in taxes and interest, the companies said in
regulatory filings.
Several groups, including the Cato Institute and Goldwater
Institute, filed briefs supporting the companies.
A Supreme Court decision is expected by the end of June.
The case is PPL Corp et al v. Commissioner of Internal
Revenue, U.S. Supreme Court, No. 12-43.
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