Sweden and the Supreme Court's PPL decision (not meant to imply, however, that these two are in any way linked)

I am now nearing the end of my second day in Stockholm, and I appear to have conquered the jet lag (subject to sleeping tonight) by dint of staying up on the first day.  I've tramped around town a lot, busted knee or not, and have seen various museums, islands, the Zoo, the Royal Palace, and shops, in addition to teaching an international tax class (more or less an impromptu tour of various interesting features of the U.S. system).  Stockholm is a relatively relaxed major city, definitely not on the adrenaline pulse a la New York, London, Vienna, etc.

Today the U.S. Supreme Court decided the PPL case, its first decision concerning foreign tax credits for 75 years (and it would certainly be fine if they don't decide another one for 75 years).  The taxpayer won, in one of those 9-0 opinions which reads like a brief for one side.  Any sophisticated reader, even knowing nothing about the issue, will recognize upon reading it that the issues can't possibly be as simple, straightforward, and clear as the opinion would have it, or else there would have been no need for the Supreme Court to take the case.

Hope for the future (if the Supreme Court takes enough tax cases for it to matter): the case is decided on economic substance grounds.  This is usually a good thing for the sound development of the tax law, relative to the Court's deciding to be rigid and formalistic.  Of course, one wonders if the fact that it was a corporate taxpayer, in this instance benefited by "economic substance," made at least the opinion's author (Justice Thomas) so eager to embrace economic substance this time around.

The government clearly blundered, given the role that economic substance generally plays in the tax cases, in claiming that this was a case in which formalities should control.  But (as I have discussed the case in earlier posts), it was reacting to the fact that the UK government made the "mistake," in terms of making foreign tax credit claims easier for US taxpayers, of describing the tax as something other than a (creditable) income tax, thus requiring the taxpayer to show that, in the main, it was economically equivalent to an income tax.

The problem, which I've discussed in earlier posts, is that creditable income taxes are, at least in the main, economically equivalent to non-creditable non-income taxes.  (For example, if property earns 5% a year, then a 40% income tax is a whole lot like a 2% property tax.)  Hence the government's formalistic argument, to the effect that you have to call it an income tax in order for it to be creditable as one - a point that might actually be reasonably consistent with the arguable "intent" of the enactors (notwithstanding that they of course never thought of this issue).

Also of concern is the fact that the creditable tax was in effect retroactive.  Now, I have written a book about retroactivity in taxation, and I am not exactly knee-jerk about how terrible it supposedly is.  But if another country can pass an effectively retroactive tax that is creditable, then potentially they can dig a scoop into the US Treasury, by hitting US companies with a levy that the companies won't mind insofar as it's creditable (i.e., reimbursable).

But this issue, which ought to have been clear, appears to have gone well over the head (or under the feet) of the Court's opinion in PPL.  So if it becomes a problem, the Treasury will have to try to deal with it on the fly next time.