ScottishPower Plc defeated the Internal Revenue Services’s bid in U.S. Tax Court to disallow more than $932 million in interest deductions.
The court in Washington ruled that stock provided by ScottishPower to one of its units upon the acquisition of a publicly held U.S. utility was a loan rather than a capital contribution under federal tax law.
The unit, NA General Partnership & Subsidiaries, made $932 million in payments on $4 billion worth of notes it issued to Glasgow-based ScottishPower in exchange for the partnership’s receipt of all outstanding stock in PacifiCorp & Subsidiaries.
“We hold that the advance was a loan, and the payments on the loan notes are deductible as interest,” the court said yesterday in a 38-page decision.
ScottishPower created NA General Partnership after it began negotiating in 1998 for the acquisition of PacifiCorp, a power supplier to California, Washington, Oregon, Utah, Idaho and Wyoming, according to the court’s ruling. The PacifiCorp acquisition was completed in 1999.
Michelle Eldridge, a spokeswoman for the IRS, declined to comment on the ruling.
The case is NA General Partnership & Subsidiaries v. Commissioner of Internal Revenue, 525-10, U.S. Tax Court (Washington).