Taxpayer wins landmark LLC case
The Supreme Court has allowed the taxpayer’s appeal in Anson (formerly Swift) v Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... More, which has been something of a long-running saga.
Originally heard in the First-tier Tribunal in 2010, the case concerns the UK tax treatment of Mr Anson, an individual member of a Delaware limited liability company (LLC). LLCs are a typically treated as ‘transparent’ for US tax purposes, whereas HMRC’s long-standing view is that they should be regarded as ‘opaque’ for UK tax purposes.
From a US tax perspective, Mr Anson was liable to tax on his share of profits arising to the LLC. However, for UK tax purposes, he was liable to tax only on receipt of funds once distributed to him personally (i.e. as dividend income).
This mismatch in tax treatment led HMRC to contend that Mr Anson was not eligible to claim relief for US taxes paid on his share of LLC profits against UK tax arising in respect of the same monies when distributed to him. Their basis for this was that the US tax had been charged in respect of profits arising to the LLC, and not in respect of profits arising to Mr Anson personally.
The First-Tier Tribunal originally found in favour of Mr Anson, but the ruling was then overturned in the Upper Tribunal and unchanged in the Court of Appeal. The Supreme Court ruling is therefore hugely welcome, and should make it considerably easier for those investing in the US market to find a tax-efficient and workable commercial structure.
This should also represent welcome news for many UK residents with US business interests who have filed returns based no double tax relief being available, and anyone who has filed UK tax returns on that basis should consider submitting overpayment relief claims to recover the overpaid tax.
Please contact us should you wish to discuss the decision and it’s impact on you.