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

In: TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow

Author

Listed:
  • Charles E. McLure Jr.
  • Jack Mintz
  • George R. Zodrow

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

  • Charles E. McLure Jr. & Jack Mintz & George R. Zodrow, 2019. "US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit Case: Implications of the PPL Decision for the Creditability of Cash-flow Taxes," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 7, pages 195-225, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811205149_0007
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    Cited by:

    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.

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    More about this item

    Keywords

    Taxes; Taxation; Tax Reform; Consumption Taxation; State and Local Finance; Tax Competition;
    All these keywords.

    JEL classification:

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

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