UK and International Tax news

UK Tax Treatment Of US LLCs

Friday 28th May 2010

HMRC has appealed against a recent decision of the First Tier Tribunal (FTT) in the case of Swift v HMRC [TC00399] where it was held that the US LLC should be treated as transparent for UK tax purposes and that the profits of the LLC should be taxed on the UK members as they arose rather than as they were distributed. Where the UK members are taxed in both jurisdictions on the same income, double tax relief should be available for US tax paid.

It has been HMRC’s general practice to tax a UK resident member of an LLC on the profits of the LLC only if and when those profits are distributed by the LLC to its members. In particular, it has treated a Delaware LLC as having ordinary share capital for the purposes of s.832 TA88. A consequence of this treatment is that any tax paid in the US on the profits of the LLC is available for relief against UK tax only as underlying tax and only to a UK company which controls, directly or indirectly, at least 10% of the voting power in the LLC.

HMRC has not yet seen any examples of US LLCs for which it has considered this general practice to be inappropriate. However UK resident members have always been free to ask HMRC to review their particular circumstances if they believe that HMRC’s general practice is inappropriate to them.

In the recent case, the FTT found as fact that the members’ interests in the particular US LLC under consideration were not similar to share capital but something more similar to partnership capital of an English partnership.

HMRC intends to continue its general practice in this respect in relation to US LLC’s.

If you would like to discuss the implications of this case, please contact Keith Rushen on +44 (0)20 7486 2378.

Contact Us