By Brent Kendall
WASHINGTON--The U.S. Supreme Court ruled Monday that utility
companies that paid a windfall tax in the United Kingdom can claim
a foreign tax credit on their U.S. tax returns.
The ruling was a win for PPL Corp. (PPL), which sought a U.S.
credit after U.K. authorities assessed a windfall tax of about $140
million on a utility PPL partially owned.
The subsidiary was one of several regional utilities that had
been privatized in the U.K. Amid public concern that the government
sold the utilities too cheaply, Parliament enacted a one-time
windfall tax on the companies in 1997.
The U.S. Tax Court in 2010 sided with PPL in its dispute with
the Internal Revenue Service, but Philadelphia's Third U.S. Circuit
Court of Appeals in 2011 overturned the decision and ruled for the
government, finding the windfall tax was not creditable in the
U.S.
PPL recorded a $39 million expense after that ruling.
The Supreme Court, in an opinion by Justice Clarence Thomas,
reversed the appeals-court decision and sided with the company.
Justice Thomas, in a unanimous opinion, said the "economic
substance" of the U.K. windfall tax "is that of a U.S. income tax,"
which made the U.K. tax creditable.
The legal issue had divided lower courts, and the high court's
decision will effectively affirm a different appeal court's ruling
for Entergy Corp. (ETR) in a similar pending case.
Entergy, which also paid the U.K. windfall tax on a subsidiary
utility, had prevailed last year at a New Orleans appeals court
that allowed the tax credit.
Entergy said in a recent regulatory filing that its "total
exposure" in the case was $254 million.
American Electric Power Co. (AEP) also stands to be affected by
Monday's ruling. It filed a brief in the PPL case saying it had a
similar dispute pending with the IRS.
Write to Brent Kendall at brent.kendall@dowjones.com
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