Written by Nick Farmer, International Tax Partner - Menzies LLP, UK
Tuesday, 20 September 2011 00:00
UK & USA: Delaware LLCs – Entity classification for UK tax purposes and availability of double tax relief
The recent decision by the Upper Tribunal in Anson v. HMRC (aka Swift v. HMRC) reversed the decision of the First Tier Tribunal and held that the Delaware Limited Liability Company (“LLC”) in question was not transparent for the purposes of UK foreign tax credits.
Mr Anson was a member of the Delaware LLC and the US tax authorities taxed his share of the profits, on the basis that the LLC was a transparent entity.
The UK tax authorities contended that the LLC was a corporate entity for UK tax purposes and the LLC had paid the equivalent of a dividend. In the UK double tax relief on underlying taxes paid on a corporate entities profits is only available to corporate shareholders and therefore no credit was available to Mr Anson.
The Upper Tribunal decided that Mr Anson did not have a propriety interest in the profits of the LLC and that the profits belonged to the LLC. The contractual obligation to allocate profits to the members did not mean that the profits belonged to the members themselves.
The decision confirms the UK tax authorities customary position that a US LLC is to be treated as an opaque entity for UK tax purposes. This accompanies the guidelines set out in the HMRC published guidance and the principal previously understood by UK tax practitioners.
Why this is important:
This decision is important for UK individuals and companies structuring investments into the US. The LLC can present tax planning opportunities, but with the entity being treated as transparent in the US and as a corporate in the UK, the cross-border tax implications need to be fully appreciated in both territories.
For further information please contact Nick Farmer at
International Tax Partner at Menzies LLP
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