Anson v HMRC – Double Taxation Relief Allowed on US LLC Income
After a lengthy appeals process, the Supreme Court has ruled on whether a taxpayer can claim double taxation relief for income from a US Limited Liability Company (LLC).
The taxpayer was a non-domiciled UK resident and member of a Delaware LLC. The LLC was classed as a partnership under the US tax code. He was therefore taxed on his share of the profits by the US. He was then liable to pay UK tax on the balance remitted from the US. He claimed relief in the UK under the double taxation agreement with the US. HMRC refused the claim.
The dispute centred on how the income should be described and at what stage it arose. The case turned on the UK/US double taxation treaty and whether each nation’s relevant tax was “computed by reference to the same profits or income.”
HMRC claimed that no relief was available because the income was a distribution, akin to a dividend, whilst the US had taxed him directly, as a partner, on his share of the LLC’s profits.
The Court found that Delaware law and the LLC’s founding documents showed the taxpayer had a right to the LLC’s profits as they arose. It was not distributed after a decision by management like a dividend. However the Court also stressed that the double taxation treaty should be interpreted broadly with a greater focus on whether or not the sum being considered was the same in both countries.
The Court therefore ruled in favour of the taxpayer and he was able to claim double taxation relief.
Notwithstanding this verdict, HMRC have said they consider the decision to be specific to the facts of the case and will continue to treat US LLCs as companies for UK tax purposes.
UK taxpayers with similar overseas interests should therefore be aware of HMRC’s stance and consider whether their case is similar enough to Anson to defend a departure from it.