PPL Corp. v. Comm'r of Internal Revenue, No. 11-1069 (3d Cir. 2011)Annotate this Case
In 1997 plaintiff held a 25% stake in a utility in the United Kingdom that was one of 32 U.K. companies subject to a one-time "windfall tax." After it paid that tax, plaintiff claimed a foreign tax credit on its U.S. tax return under I.R.C. 901. The windfall tax emerged from a backlash against the privatization of British utilities and transit operators. In concept, the windfall tax was a one-time 23% tax on the difference between each company’s "profit-making value" and the price for which the U.K. government had sold it. The public believed that the government had sold the companies too cheaply. In 2007, the IRS denied plaintiff's claim and issued a notice of deficiency. The Tax Court agreed that plaintiff was entitled to a foreign tax credit. The Third Circuit reversed, holding that the windfall tax does not qualify for a foreign tax credit. Whether a foreign tax qualifies requires analysis of the timing and the base of the foreign tax; a realization requirement, one of timing, ensures that the taxpayer has received income before being obligated to pay taxes on it.
The court issued a subsequent related opinion or order on August 26, 2014.