Should the U.S. dictate world tax policy? Reflections on PPL Corporation v. Commissioner

Reuven S. Avi-Yonah, University of Michigan Law School

Reprinted with the permission of Tax Analysts.


The U.S. Supreme Court’s decision to grant certiorari in the PPL case offers it a unique opportunity to change the law regarding foreign tax credits that has significantly impeded the ability of other countries to engage in meaningful tax reform.1 In 1938 the Court said in dicta that to qualify for the foreign tax credit a tax had to be an income or excess profits tax (or a tax imposed in lieu thereof) under U.S. tax principles.2 This statement has led to an elaborate set of regulations defining what is an income tax, which has significantly hampered the ability of foreign countries to adopt tax reforms for fear that their taxes would not be creditable.3 It is time for the Court to declare that any tax whose burden falls on the taxpayer, that is, any direct tax, is a creditable tax, and do away with the cumbersome structure of the IRC section 901 regulations.4