The Internal Revenue Service (IRS) is appealing a Tax Court ruling which said that the foreign tax qualifies as creditable tax under the Internal Revenue Code (Code).
In deciding the case, the US Court of Appeals for the Fifth Circuit, will determine what types of evidence may be considered in the question of whether a tax is creditable.
In its opening brief filed on April 13, the government argued that the Tax Court erred in applying a three-part test for determining whether a foreign tax is creditable.
This test, which is set forth in the regulations for section 901(a) of the Code, says that a foreign tax may be creditable if it has the predominant character of an income tax, which can be determined by looking at three factors: realisation, gross receipts, and net income.
If those three factors show that the tax is sufficiently similar to an income tax, then it will be creditable under section 901 of the Code.
The UK windfall tax is a levy on the excess profits of privatised utilities companies.
In its brief, Entergy argued that the government’s claim that the text of the statute is the only relevant evidence is misplaced. Instead Entergy argues that it is proper for the court to look to other factors, since there is “overwhelming authority establishing that the predominant character of a foreign tax is measured by its intent and effect.”
Stephen Gardner, tax partner at Cooley, a law firm in New York who filed the brief on behalf of Entergy did not have any comment on the case.
The government must file its reply brief by May 31.
Counsel for appellees: Stephen Gardner, John Steines, and Benjamin Oklan of Cooley
Counsel for appellant: US Department of Justice filed the opening brief on behalf of the IRS
