PPL Corp. & Subsidiaries v. Comm'r, 2010 U.S. Tax Ct. LEXIS 31 (T.C. Sept. 9, 2010)

The IRS had declared a deficiency in 1997 federal income tax paid by PPL Corporation, the common parent of a group filing consolidated returns, denying its refund claim. At issue inter alia was the correctness of an IRS claim that a "windfall tax" paid by PPL's indirect United Kingdom subsidiary LLC per Finance (No. 2) Act 1997, c. 58, Pt I, clause 1 (Eng.) was not creditable per IRC Sec. 901.

The subsidiary LLC generated and distributed electricity in parts of the UK. Though originally incorporated as a public company, it was privatized through a public share offering and was subject to the UK tax enacted in 1997. The LLC ultimately paid £90 million on account thereof. When the IRS denied petitioner's claim, on its 1997 return, for a $786,804 refund, petitioner sought relief. The court held for PPL. The court framed the issue as being whether the UK tax constituted a creditable income or excess profits tax per § 901, the court held that the character of the UK tax was to be determined by measuring it against essential features of the domestic income tax system by application of the "predominant character" analysis in Treas. Reg. § 1.901-2(a)(3) and that it might consider evidence beyond the text of the UK tax law including evidence of its design and its actual economic and financial effect as applied to the majority of affected taxpayers. Based on that analysis, the court held that the UK tax was a creditable income tax for § 901 purposes, reasoning that the UK tax was directed at net gain or income even if, by its terms, it was imposed squarely on the difference between two values.

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