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Entergy among companies awaiting U.S. Supreme Court ruling on foreign tax credits

November 12th, 2012 No comments

The U.S. Supreme Court agreed in late October to consider whether three energy companies – including Entergy Corp. – are entitled to foreign tax credits after they each paid what the United Kingdom calls “windfall taxes.”

The issue arose out of a ruling from the 3rd Circuit Court of Appeals against Pennsylvania-based PPL Corp., which owns a majority stake in a British electric utility that was included in a privatization of almost 30 U.K. companies that started in the late 1980s.

By the late 1990s, the public backlash over the perception that the companies had been sold for less than their worth led the U.K. government to impose a onetime windfall tax. PPL’s liability came out to $144.9 million. New Orleans-based Entergy’s tax bill resulted in the company claiming a $234 million credit here.

PPL and Entergy argued to the IRS that they were entitled to foreign income tax credits. The IRS rejected those claims, saying the windfall taxes the companies paid in the U.K. were based on their unrealized value, not profits, which could not be credited.

The 3rd Circuit upheld the IRS’ decision against PPL late last year. The Fifth Circuit Court of Appeals, considering the same issue, ruled in June in Entergy’s favor.

The U.S. high court will likely issue a decision no later than June 2013.

Analysts have said that a decision in favor of the IRS will give that agency more authority to examine foreign tax credit claims, especially in cases where the law is vague.

“The issue is relevant to any international company,” Jerold Cohen, former IRS chief counsel, told Reuters. “The (Supreme) Court takes very few tax cases.”

Several groups, including the Cato Institute and the Goldwater Institute, have filed briefs supporting the companies.