The UK Supreme Court yesterday issued a landmark ruling in the long-running Anson tax case.
The decision will have a significant impact on UK individuals and companies with investments in US limited liability companies (“LLCs”).
The crux of the case is whether US LLCs are transparent or opaque for UK tax purposes. Transparent entities are treated as partnerships, whilst opaque entities are treated as companies, and the tax implications are very different.
The US treats LLCs as transparent, but HMRC has always argued that they are opaque for UK purposes. This mismatch created substantial problems for some investors. For Mr Anson, who brought the case to trial, HMRC’s position resulted in an increased tax liability of around 27%. That position has now been overruled.
The decision will be beneficial for many investors, but could be highly problematic for others.
Blick Rothenberg partner Paul Smith comments; “HMRC have considered that a US LLC is a company and have not allowed a claim for double tax relief. In the case heard before the Courts this resulted in a 67% tax rate to Mr Anson rather than the top rate of UK tax at that time of 40%. This perhaps unfair taxation of Mr Anson has now been rectified by the Courts and his tax rate will now be adjusted down to 40% for the relevant year.
This case demonstrates that UK tax law is not always black and white, as highlighted by the changes in decisions made throughout the process. At the First Tier Tribunal, the decision was for the taxpayer; however the decision was against him at the Upper Tribunal and the Court of Appeal. Finally, though, the Supreme Court ruled in his favour. Well done to Mr Anson for persisting with his claim and obtaining a fair result in this case.”
Robert Harness, corporate tax manager at Blick Rothenberg, said: "The ruling ensures that HMRC’s approach will finally be consistent with the US treatment. However, it may have major implications for UK resident investors in US LLCs, whether companies or individuals. It is important that such investors seek advice to ensure they are not compromised by this decision.”
For further information or to find out if this affects you, please contact Paul Smith
or your usual Blick Rothenberg contact.