National Grid Holdings, Inc., et al. v. Commissioner of Revenue (Lawyers Weekly No. 11-064-16)
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us 14-P-1662 Appeals Court NATIONAL GRID HOLDINGS, INC., & others[1] vs. COMMISSIONER OF REVENUE. No. 14-P-1662. Suffolk. December 11, 2015. – June 8, 2016. Present: Cypher, Carhart, & Blake, JJ. Taxation, Abatement, Corporate excise, Accounting principle. Public Utilities. Debt. Corporation, Stock. Evidence, Settlement offer. Appeal from a decision of the Appellate Tax Board. John S. Brown (Donald-Bruce Abrams with him) for the taxpayers. Brett M. Goldberg for Commissioner of Revenue. CYPHER, J. The plaintiffs, National Grid Holdings, Inc. (NGHI), National Grid USA (NGUSA), and National Grid USA Service Company, Inc. (NG Service) (collectively, taxpayers), appeal from a decision of the Appellate Tax Board (board) in favor of the defendant, Commissioner of Revenue (commissioner), on the taxpayers’ claims for an abatement of corporate excise for the tax year ended March 31, 2002. Primarily at issue is whether certain financing transactions, referred to as deferred subscription arrangements (DSAs), among various subsidiaries of National Grid plc (NGPLC), constituted true indebtedness so that the interest paid thereon qualified for the deduction allowed under the Massachusetts taxation of corporations statute, G. L. c. 63, § 30(4). NGPLC is a British electric and gas utility company that owns numerous entities in the United States (U.S.), the United Kingdom (U.K.), and beyond (collectively, National Grid). The DSAs were financing arrangements designed by National Grid to take advantage of the differences in the U.S. and U.K. tax codes.[2] National Grid attempted to cast the transactions as indebtedness under U.S. State and Federal tax laws, thereby reducing National Grid’s tax liability in the U.S., and as equity, under U.K. law, thereby reducing its taxable income in the U.K. Of overriding concern was the avoidance of any appearance of indebtedness in the U.K., where a debenture between a U.K. entity and its foreign subsidiary is strictly prohibited by statute, under threat of criminal sanctions.[3] To that end, National Grid drafted the DSAs as agreements among various related entities to sell and repurchase shares of stock, maintaining in these proceedings that the mandatory nature of the stock repurchase constituted debt under Massachusetts corporate tax law. “We will not modify or reverse a decision of the board if the decision is based on both substantial evidence and the correct application of the law.” Boston Professional Hockey Assn. v. Commissioner of Rev., 443 Mass. 276, 285 (2005). […]