Court date for foreign firms in US tax dispute

NEW YORK - Barclays Bank and dozens of other multinational corporations won a victory in their decade-long battle against California's taxation system yesterday when the US Supreme Court agreed to hear their case against global unitary taxes, writes Larry Black.

Ignoring pleas from the Clinton administration, the court said it would entertain claims by the companies that they were unfairly assessed for taxes in the early 1980s based on their worldwide profits rather than on the earnings of their California-based subsidiaries.

Although the state has since changed its laws to conform with international tax legislation, the foreign companies could recoup as much as dollars 4bn in overpayments and interest if the Supreme Court decides in their favour.

The court's decision puts the US president in an awkward position. Although preceding US governments had all opposed California's unitary tax law, Mr Clinton campaigned last year on a pledge to back the cash-strapped state in the dispute.

The administration managed to persuade California only to tax subsidiaries, hoping this would appease the courts. But foreign governments - including the UK and European Union - and multinational companies maintain that fundamental international tax issues are still at stake in the case.

In a brief to the court, Barclays said that California's new law does not completely resolve the issue. It complained that all US states still retain the constitutional right to reimpose unitary taxes in the future. The Chancellor of the Exchequer, in a statement on the issue in September, said that 'while the legislation was a significant step forward, on its own it does not provide a complete solution to the unitary tax problem'.

Yesterday, Barclays welcomed the court's decision, saying it was 'confident of a successful outcome to this long-running matter'.