UPDATE 1-US Supreme Court accepts PPL appeal in British tax case

WASHINGTON, Oct 29 (Reuters) - The Supreme Court agreed on Monday to consider whether a U.S. company is entitled to a tax credit when it pays a so-called ``windfall tax'' imposed by the United Kingdom.

At issue is a ruling against the U.S. energy company PPL Corp, which had taken a stake in Britain's South Western Electricity Plc, among the companies included in a UK privatization of 32 companies in the 1980s and 1990s.

In reaction to a public backlash that the privatized companies had been sold too cheaply, the British government imposed one-time windfall taxes on those companies. This resulted in a liability of 90.4 million pounds (US$144.9 million) for South Western, according to court papers.

U.S. companies that had to pay the windfall tax sought foreign income tax credits from the Internal Revenue Service. But the IRS rejected their claims, saying the windfall taxes were based not on the British companies' profits, which could be credited, but on their unrealized value, which could not.

Last December, the 3rd U.S. Circuit Court of Appeals in Philadelphia ruled against PPL and found that the windfall tax did not qualify for a credit.

A decision is expected by the end of June.