The creditability of foreign taxes: supreme court decides on British windfall profits tax

Internal Revenue Code (IRC) section 901 was enacted to allow US companies a credit for certain income-type taxes paid to foreign countries; however, determining which taxes meet the requirements of this section is not always straightforward. In 1997, the British government charged a windfall tax on...

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Bibliographic Details
Published inThe CPA journal (1975) Vol. 83; no. 10; p. 44
Main Authors Burnett, Sharon, Pulliam, Darlene
Format Journal Article
LanguageEnglish
Published New York New York State Society of Certified Public Accountants 01.10.2013
Subjects
Business enterprises
Case law
Corporate profits
Federal court decisions
Foreign tax credits
Income taxes
International taxation
Liability
Multinational corporations
Net income
State court decisions
Subsidiaries
Supreme Court decisions
Tax courts
Tax law
Tax rates
Tax regulations
Taxation
Windfall profits
United States
United Kingdom
United States > US
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Summary:Internal Revenue Code (IRC) section 901 was enacted to allow US companies a credit for certain income-type taxes paid to foreign countries; however, determining which taxes meet the requirements of this section is not always straightforward. In 1997, the British government charged a windfall tax on a group of companies, including two US multinationals. The IRS, the Tax Court, the Third Circuit Court of Appeals, and the Fifth Circuit Court of Appeals all had opinions on whether the windfall tax was a creditable tax. In May 2013, the Supreme Court's ruling settled the disagreement over this foreign tax. The Supreme Court unanimously agreed with the Fifth Circuit's decision that the predominant character of the windfall tax was an excess profits tax, which is a type of income tax in the US sense. The Court decided it must follow the economic substance over form in recognizing that the windfall tax is nothing more than a tax on actual profits above a threshold.
ISSN:0732-8435