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US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit

Author

Listed:
  • Charles E McLure

    () (Stanford University)

  • Jack Mintz

    () (University of Calgary)

  • George R. Zodrow

    () (Rice University)

Abstract

In a recent unanimous decision in the PPL case, the US Supreme Court ruled that a one-timeretroactive British “Windfall Tax” levied on 32 public utilities that were privatised between 1984 and 1996 was eligible for the US foreign tax credit (FTC). The Court rejected the contention of the US Internal Revenue Service that eligibility for the FTC should be governed by the legislative form of the tax rather than its economic substance. This decision could have farreaching implications for the creditability of taxes that are not ordinarily thought to be income taxes, including various cash-flow business taxes that are key elements of several proposals recommending replacement of the income tax with a consumption-based tax. This article examines these issues, arguing that one and arguably both of the most common forms of cash flow consumption-based taxes should be creditable; it also discusses questions that remain about the interpretation of key regulatory requirements that govern creditability.

Suggested Citation

  • Charles E McLure & Jack Mintz & George R. Zodrow, 2014. "US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit," Working Papers 1411, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:1411
    as

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    File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/series-14/WP1411.pdf
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    References listed on IDEAS

    as
    1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    2. McLure, Charles E. Jr. & Zodrow, George R., 1998. "The Economic Case For Foreign Tax Credits for Cash Flow Taxes," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 1-22, March.
    3. Robin Boadway & Neil Bruce & Jack Mintz, 1984. "Taxation, Inflation, and the Effective Marginal Tax Rate on Capital in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 17(1), pages 62-79, February.
    4. Harry Grubert & Rosanne Altshuler, 2013. "Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax," National Tax Journal, National Tax Association, vol. 66(3), pages 671-712, September.
    5. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation.
    6. Charles E. McLure, Jr. & George R. Zodrow, 2007. "Consumption-based Direct Taxes: A Guided Tour of the Amusement Park," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(2), pages 285-307, June.
    7. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November.
    8. Bernd Genser & Andreas Reutter, 2007. "Moving Towards Dual Income Taxation in Europe," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 436-456, September.
    9. McLure, Charles E. Jr. & Zodrow, George R., 1998. "The Economic Case for Foreign Tax Credits for Cash Flow Taxes," National Tax Journal, National Tax Association, vol. 51(1), pages 1-22, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ey, 2015. "Experiences with cash-flow taxation and prospects. Final report," Taxation Papers 55, Directorate General Taxation and Customs Union, European Commission.

    More about this item

    Keywords

    US Supreme Court PPL decision; windfall profits tax; foreign tax credit; cash flow tax; rent tax;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H8 - Public Economics - - Miscellaneous Issues

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