PPL Corp. v. Commissioner (12-43)

argument 12-43

PPL Corp. v. Commissioner

Supreme Court of the United States 56 min 4 speakers 8 chapters transcribed 4 days ago official recording ↗

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What is the historical background of the PPL privatization and the UK excess‑profits tax?

John G. Roberts 0:01

We will hear argument next in case twelve forty-three, PPL Corporation and Subsidiaries versus the Commissioner of Internal Revenue. Mr. Clement.

Mr. Clement 0:10

Mr. Chief Justice, and may it please the court. This case has its origins in a decision by the British government in the major Thatcher years to privatize a number of previously state owned utilities. The government's plan was to keep prices constant and allow the companies to make profits by increasing efficiencies and reducing costs. Only after an initial period in which prices would be fixed would the prices be rejiggered and then savings passed on to the consumers. Now this in practice worked very well for the companies. They were able to increase their efficiencies and cut costs to a greater extent than people expected. This was not, however, greeted as a unif uniform success. Instead, the opposition party criticised this and said that the fat cats at the utility companies had earned too much and the Conservative government had made a mistake by valuing the shares at IPO too cheaply.

Mr. Clement 1:02

And so they promised, as an express election promise, to impose a tax on the excess profits of privatized utilities. And when elected, they made good on that promise and passed. I have

Elena Kagan 1:14

a problem with this argument, because it assumes a way of looking at this, but it's an assumption. You could look at it in either way. You can look at it as they made too much money, we want a part of that profit. Or They pay Too little for what they got. And that was the debate going on in Congress. Did they pay too little on the flotation value? Or did they make too much money? And what the government says rightly is. Whether you pay too much or too little money depends on the value of the company. And one of the factors that goes into that is how much money has the company made. And so you always have to look at profits to some extent. So what's wrong with looking at it their way? Why does it have to be your way?

Mr. Clement 2:06

Well, it has to be my way because of the way the specific tax was designed. But No,

Elena Kagan 2:10

you can only do it your way if you do what the amicai says. which is to take out from your simplified equation The fact that the uh time the D element of your equation is constant. You artificially freeze it. the time at which they operated. Only by freezing that number can you come out with your equation.

Mr. Clement 2:36

Well Y Your Honor, we're not artificially freezing the the the number. The number, the D of just fourteen sixty one for almost every company, is itself part of the statute because they picked a period by which they were going to measure the profit and value making But

Elena Kagan 2:51

there was at least two or three companies that had a very different Period. And they paid a huge amount, much further than their gross profits.

Mr. Clement 2:59

Well, I can talk about the

Elena Kagan 3:01

change for them.

Mr. Clement 3:02

I can talk about the outlying companies. They paid a different effective rate because the D was different. But there's two important things to remember. One, I believe it's common ground between the parties that the way you applied this regulation is to look at the tax in to use the regulatory phrase in the normal circumstances in which it applies. So I believe it's common ground that you ignore the outliers anyway.

Elena Kagan 3:23

But you change the other part of the equation. or of the tax regulation which says it has to be true for all taxpayers.

Mr. Clement 3:32

No, that particular provision, think of it as like a Clark V. Martinez principle for taxes. They either are creditable or they're not. That's what that principle has been interpreted to. The case you should look at if you're really interested in it is the Exxon case, the tax court. We cited in both our briefs. And there it was a situation where, again, a British excess profits tax. In the main, it was an excess profits tax on the companies that were developing the North Sea oil field, but as the tax applied to a couple of companies that really hadn't gotten any oil out, it applied very differently. And the tax court and the government in that case both conceded. No, you look at the tax in its main applications.