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US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit Case: Implications of the PPL Decisions for the Creditability of Cash-Flow Taxes

Author

Listed:
  • McLure, Charles E.

    (Stanford University)

  • Mintz, Jack

    (University of Calgary)

  • Zodrow, George R.

    (Rice University and Centre for Business Taxation, Oxford University)

Abstract

In a recent unanimous decision in the PPL case, the US Supreme Court ruled that a one-time retroactive British "Windfall Tax" levied on 32 public utilities that were privatized 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 far-reaching 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

  • McLure, Charles E. & Mintz, Jack & Zodrow, George R., 2014. "US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit Case: Implications of the PPL Decisions for the Creditability of Cash-Flow Taxes," Working Papers 14-010, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:14-010
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    References listed on IDEAS

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    1. Kayis-Kumar, Ann, 2015. "Thin capitalisation rules: A second-best solution to the cross-border debt bias?," MPRA Paper 72031, University Library of Munich, Germany.
    2. Ey, 2015. "Experiences with cash-flow taxation and prospects. Final report," Taxation Papers 55, Directorate General Taxation and Customs Union, European Commission.

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H80 - Public Economics - - Miscellaneous Issues - - - General

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