October Term, 2012
May 20, 2013
Today the Supreme Court issued two decisions, described below, of interest to the business community.
Chevron Deference to Agencies’ Jurisdictional Determinations—Telecommunications Act
City of Arlington v. FCC, No. 11-1545 (previously discussed in the October 8, 2012, Docket Report)
Under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984), courts must defer to an agency’s reasonable interpretation of an ambiguous provision in a statute that the agency is charged with administering. Today, a majority of the Supreme Court ruled that Chevron deference extends to an agency’s interpretation that concerns the scope of the agency’s jurisdiction.
Under the Telecommunications Act of 1996, state and local governments must “act on any request for authorization to place, construct, or modify personal wireless service facilities within a reasonable period of time.” 47 U.S.C. § 332(c)(7)(B)(ii). Anyone aggrieved by a state or local government’s inaction under this provision may bring suit under 47 U.S.C. § 332(c)(7)(B)(v). In 2008, wireless-industry companies, including CTIA–The Wireless Association, asked the FCC to impose concrete deadlines on state and local governments’ decision-making under 47 U.S.C. § 332(c)(7)(B)(ii). Rejecting the argument that it lacked jurisdiction to impose such deadlines, the FCC determined that “a reasonable period of time” presumptively means 90 days for collocation applications and 150 days for all other applications.
Petitioners sought review of the FCC’s rule in the U.S. Court of Appeals for the Fifth Circuit. Recognizing that the courts of appeals were split on the question, the Fifth Circuit reaffirmed its view that Chevron deference extends to an agency’s determination of its own jurisdiction. Applying Chevron deference, it upheld the FCC’s decision on the merits.
The Supreme Court granted certiorari to decide whether courts should apply Chevron deference to agency interpretations of statutory ambiguities that concern the scope of the agency’s own statutory authority. Justice Scalia authored the majority opinion, joined by Justices Thomas, Ginsburg, Sotomayor, and Kagan. The majority rejected the notion that a separate category of “jurisdictional” agency interpretations should be carved out and treated specially under Chevron. According to the majority, Chevron requires courts to ask only “whether the agency has stayed within the bounds of its statutory authority.” No principled or meaningful distinction can be drawn “between an agency’s exceeding the scope of its authority (its ‘jurisdiction’) and its exceeding authorized application of authority that it unquestionably has.” In both cases, the question for a court is “whether the agency has gone beyond what Congress has permitted it to do.” Put another way, the guiding principle in every case is, “simply, whether the statutory text forecloses the agency’s assertion of authority, or not.”
Justice Breyer concurred in part and concurred in the judgment, limiting his agreement with the majority opinion to cases in which the question faced by courts “is, simply, whether the agency has stayed within the bounds of its statutory authority,” but distinguishing harder cases in which courts must probe “just what those statutory bounds are.” Chief Justice Roberts, joined by Justices Kennedy and Alito, dissented. In their view, before a court may defer to an agency’s interpretation of an ambiguous statute under Chevron, it must first determine for itself whether Congress “has in fact delegated to the agency lawmaking power over the ambiguity at issue.”
This case resolves a question of substantial importance to businesses subject to agency regulation. The majority opinion puts to rest doubts about whether Chevron deference applies to an agency’s determination that seemingly expands or contracts its statutory jurisdiction.
Any questions about the case should be directed to Miriam Nemetz (+1 202 263 3253) in our Washington office.
Taxation—Scope of Provision Authorizing Tax Credit for Income, War-Profits, or Excess-Profits Tax Paid to Foreign Country
PPL Corp. et al v. Commissioner of Internal Revenue, No. 12-43 (previously discussed in the October 29, 2012, Docket Report)
In a unanimous decision, the Supreme Court held today in PPL Corp. v. CIR, No. 12-43, that U.S. corporations that have paid taxes in the United Kingdom under that country’s “windfall tax” are entitled to a credit on their U.S. taxes for the money paid to the U.K. Today’s decision resolves a conflict among the lower courts over whether the U.K.’s windfall tax is creditable under Section 901 of the Internal Revenue Code, which entitles domestic corporations to credit for any “income, war profits, or excess profits” taxes paid to other countries. 26 U.S.C. § 901. The Court held that because the “predominant character” of the windfall tax is that of an “excess profits” tax, payments of the tax are creditable under § 901. More broadly, the Court held that in determining whether a foreign tax is creditable, courts may permissibly look beyond the form of the tax and analyze whether the foreign tax is effectively a tax on income.
Petitioner PPL Corporation claimed a tax credit under § 901 for its subsidiary’s payment of the U.K.’s windfall tax. The windfall tax is calculated by comparing the value of a company at the time of its privatization in the U.K. to its value at the end of the four-year period following privatization. The Internal Revenue Service disallowed the claimed credit because the formula used to determine value of the company took into consideration an amount greater than gross receipts, in violation of Treasury Regulation § 1.901-2. The IRS therefore determined that the U.K. windfall tax is not a tax on “income, war profits, or excess profits,” as those terms are understood under U.S. law. The Third Circuit agreed with the IRS, reversing a decision of the Tax Court, which had agreed with PPL that “the design and incidence of the [windfall] tax … is that of a tax on excess profits.”
The Supreme Court reversed, holding that a foreign tax’s predominant character, or the normal manner in which it is applied, controls the analysis of whether it is creditable under § 901. Therefore, creditability does not depend on the way that a foreign government characterizes its tax, but rather on whether the tax reaches net income or profits. In this case, the Court concluded that the windfall tax was the economic equivalent of a tax on the difference between the profits that the company actuallyearned and the amount that the U.K. believed that the company should have earned given the value that was assigned to the U.K. subsidiary upon privatization. The tax thus effectively constituted a percentage tax on all profits earned above a threshold—a classic example of an excess-profits tax. Accordingly, the Court held that the windfall tax was creditable under § 901.
Although joining the majority opinion, Justice Sotomayor also concurred separately, reasoning that if all the payers of the windfall tax are taken into account, the windfall tax may actually be a tax not on profits but on average profits, or on the increased value of the company as a whole. In that case, she concluded, the windfall tax might not be akin to an income tax and hence there may be no credit for windfall-tax profits under § 901. But because that issue was not raised by the parties, she took the view that it was not properly before the Court and might arise in a future case.
Any questions about the case should be directed to Tom Durham (+1 312 701 7216) in our Chicago office.
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