Mr. Cope monitors the development of U.S. tax law daily through postings on government websites, daily tax publications, monthly tax journals, tax newsletters, tax conferences and meetings of professionals organizations in New York and Washington. Each month he publishes the Tax Insights Blog, which describes and analyzes significant U.S. tax developments (e.g., judicial decisions, regulations, proposed tax legislation) having cross-border tax consequences. The blog's content should be of interest to U.S. businesses with foreign operations and businesses headquarted outside the United States with U.S. investments or U.S. operations.
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Court of Federal Claims Follows Tax Court and Rejects the STARS Transaction
On September 20, 2013, the U.S. Court of Federal Claims issued an opinion in favor of the government in the case of Salem Financial, Inc. v. United States
.The case involved a cross-border tax-advantaged financing transaction, known as STARS, which was co-marketed to Salem Financial by Barclays Bank PLC and the U.S. accounting firm KPMG LLP. In Bank of New York Mellon Corporation v. Commissioner of Internal Revenue
the Tax Court considered the STARS transaction and denied the taxpayer the purported tax benefit (foreign tax credits) on grounds that the transaction, while compliant with the statute, failed to satisfy the economic substance doctrine. The case is of interest because it illustrates the expanding scope of the economic substance doctrine and the enhanced role of the courts in making U.S. federal income tax law.
Supreme Court Holds U.K. Windfall Profits Tax is Creditable
On May 20, 2013, the U.S. Supreme Court issued its opinion in PPL Corp. et al. v Commissioner of Internal Revenue, which settles a split between the Third Circuit and the Fifth Circuit as to whether the United Kingdom's "windfall tax" on privatized U.K. companies is a credible tax under U.S. federal income tax law. By finding the tax to be creditable, the Supreme Court allowed PPL a foreign tax credit for the windfall tax paid by PPL’s privatized U.K. subsidiary. The credit reduced PPL’s U.S. tax liability with respect to the repatriated earnings of the subsidiary.
Bank of New York Mellon Loses in Tax Court
On February 11, 2013, the U.S. Tax Court issued a decision in favor of the government in a case involving a tax-advantaged financing transaction entered into between Barclays Bank, PLC (“Barclays”) and the Bank of New York in 2001. The case is significant because it further elucidates how the Tax Court will apply the evolving economic substance doctrine in order to disallow tax benefits to participants in a transaction that otherwise follows the letter of the statutory law. The case also illustrates the increasing influence of the courts in U.S. tax matters, particularly those transactions that are complex or involve areas of the tax law that are less well developed.