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UK Court Of Appeal Rules On Tax And Delaware LLC

By Amanda Banks, Tax-News.com, London

22 February 2013

The London Court of Appeals has confirmed that a UK resident who receives a distribution from a Delaware Limited Liability Company will not be entitled to tax relief under the terms of the Double Taxation Treaty between the US and the UK.

Lady Justice Arden confirmed the decision of the Upper Tier Tribunal in the case of Anson vs HMRC, which drew a distinction between tax on a company's profits and tax on distributions received from a company. George Anson, the individual concerned, received his distribution as the result of a contractual arrangement, but the court found that he did not have proprietary rights to the profits, which belonged to the LLC itself. The company, HarbourVest LLC, was not analogous to a partnership, but instead had a separate legal personality.

The ruling makes a distinction between how Delaware LLCs are regarded in the USA and in the UK. In the USA, HarbourVest is "tax transparent," meaning that it pays no tax and that members pay tax on their share of the profits. Justice Arden suggested that it would be "unusual" for a business entity with a separate legal personality to be tax transparent in the UK, although not impossible. In particular, she noted the example of Scottish partnerships: in such cases, partners retain an indirect interest in the assets and carry on business in common.

Anson has already paid 45% tax in the USA on the company’s profits. He must now pay a further 22% tax in the UK on his distribution.

TAGS: tax | investment | double tax agreement (DTA) | law | United Kingdom | HM Revenue and Customs (HMRC) | HM Revenue and Customs (HMRC) | individual income tax

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