UK and International Tax news
UK Tax Treatment Of US LLCs Update
Monday 12th September 2011
The Upper Tribunal [UT] has recently heard HMRC’s appeal against the 2010 decision of the First Tier Tribunal (FTT) in the case of Swift v HMRC [TC00399] – see our International Tax News item of 28 May 2010.
The FTT had held the US LLC should be treated as transparent for UK tax purposes and that the profits 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.
As previously reported, 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.
The UT has now found in favour of HMRC, in CIR v George Anson [2011 UKUT318], the case having been previously anonymised as ‘Swift,’ and held that the LLC was not transparent, the members did not have an interest in the profits of the LLC in any meaningful sense and that the profits on which tax had been paid in the US were the profits of the LLC. In the UK, however, the members were to be taxed on the distributions from or entitlement under the LLC agreement. As they were two different sources, the availablity of doulble tax relief under the treaty was not available.
In upholding the appeal of HMRC, Mann J indicated that the taxpayer’s previous appeal with regard to s.739 TA88 should be restored.
If you would like to discuss the implications of this case, please contact Keith Rushen on +44 (0)20 7486 2378.Contact Us