PPL Corporation v. Commissioner of Internal Revenue

I chose this court case because the decision will have effectuate on m each businesses in the unite States who own outside companies. A prop for the Commissioner of internal Revenue may subject valuepayers in PPLs position to mental image revenue enhancementation. However, a holding for PPL threatens to undermine the consistency and uni variantity of the U. S. evaluate code as well as curtailing the power of the Commissioner of Internal Revenue to interpret the law. The main issue in the case is whether or not a U. S. go with receives a U. S. revenue credence for compensable the unite Kingdoms manna tax.Along with the issue comes the apparent movement on whether or not the courts should employ a formalistic nest that looks solely at the form of the international tax statue and ignores how the tax in reality operates, or should employ a substance based salute that considers factors much(prenominal) as the practical operation and intended effect of the impertine nt tax. discussion section 901 of the Internal Revenue Code allows U. S. Corporations a tax credit for income, struggle services, and surfeit profits taxes paid to another country to avoid triple taxation.This case involves the application of section 901 to a winfall tax (a one-time twenty tether percent tax imposed by the United Kingdom on privatized companies). Petitioner PPL Corporation is an energy caller-up in Allentown, Pennsylvania that provides electrical energy and natural gas to consumers in the United States and the United Kingdom. PPL Corporation have a 25% share in South Western electrical energy Board that the Government privatized in the 1980s. In 1997, the U. K. Government imposed a windfall tax on companies based on the difference amid a companys value and the flotation value, or the amount at which the U. K. Government sold the company. by and by paying the tax, PPL accordingly filed a tax claim with the IRS asserting PPL was eligible for a foreign tax c redit under section 901 of the Internal Revenue Code.After being denied by the IRS in 2007, PPL argued that the windfall tax targets income and that the calculation of the tax involves the value of the companys net gain. The Commissioner denied these laims however, stating that the tax is not a tax on income further rather a tax on the value of a company. The Commissioner adds that the calculation of the tax measures the ability of a company to generate income. The decision on the petition filed by PPL in the United States Tax Court was that PPL was entitled to a foreign tax credit because the windfall tax was essentially a tax on excess profits and this fell within the requirements of section 901. The Commissioner then appealed the decision to the United States Court of Appeals for the Third Circuit.There, the decision was reversed in favor of the Commissioner holding that the windfall tax did not entitle PPL to a foreign tax credit because the tax was a tax not solely on South We stern Electricity Boards profits but instead on the difference between its profits and sale value. On July 9, 2012 PPL contested the decision of the Third Circuit and filed a writ of writ of certiorari to the imperative Court of the United States which was granted review on October 9, 2012. As I call downd before, one of more important discussions about this cross case is what approach the courts should take when deciding.PPL argues the domineering Court should adopt an approach that considers the actual as well as the planned function of the foreign tax, a substance based approach. PPL argues that U. S. tax laws have always looked beyond the label or name of the tax imposed by the foreign country and instead focused on how the tax operates- the substance of the tax. Furthermore, the PPL notes that the exchequer Regulations, section 901-2, suggest that a substance-based approach should be used. The Treasury Regulations state that income includes any income that has already been earned, is revenue based on gross receipts, or is net income.Congress intended, as shown in section 901, that in such situations, the substance of the tax trumps its form because tax law aims to reach the realities of economical transactions and dealings. The Commissioner argues that PPLs reliance on the substance-based approach incorrectly assumes that any tax that depends on net profits is an income tax. Thus, the Commissioner rejects the substance-based approach and argues that the foreign tax paid by PPL was not an income tax and therefore does not curtail under section 901.The Commissioner argues that the substance of the U. K. windfall is the same as the form or labels that the British tax authorities have provided. The Commissioner stated that the U. K. windfall tax is a tax on the value of a company in relation to how much the U. K. government would receive for the company if it were sold. In response to PPLs argument on double taxation, the Commissioner recollects that because the windfall tax is not an income tax, PPLs profits are not actually taxed twice.The Supreme Courts decision in this case will run across whether a windfall tax involving gross receipts and excess profit constitutes the equivalent of a United States income tax and thus is eligible for a foreign tax credit under the Internal Revenue Code. I think PPL has a strong case against the Commissioner and I believe the Supreme Court will rule in the companies favor. I do believe that the windfall taxation on these businesses along with the U. S. taxation would mean double taxation for these companies.