United Kingdom: Double taxation relief for Delaware LLC income

UK: Double taxation relief for Delaware LLC income

The UK Supreme Court today issued a decision finding that a taxpayer was entitled to double taxation relief, pursuant to provisions of the income tax treaty with the United States, for income that he had remitted to the UK from a Delaware limited liability company (LLC). Anson v. Commissioners for HM Revenue & Customs [2015] UKSC 44 (1 July 2015)

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As explained in a press summary [PDF 135 KB] from the UK Supreme Court, the taxpayer maintained that his income arose as profits were earned by the LLC, and that the income that was subject to tax was his share of the profits—regardless whether they were distributed by the LLC. HMRC’s position was that income only arose when the profits were distributed by the LLC, so that the income liable to tax was the distribution.

The lower tribunal found that members of the LLC have an interest in the profits of the LLC as the profits arise. Accordingly, the taxpayer was entitled to the share of the profits allocated to him (rather than receiving a transfer of profits previously vested in the LLC), and since he was taxed on the same income in both countries, he was entitled to double taxation relief.

Today's release explains that the taxpayer was entitled to treaty relief because:

…his “income arising” in the US was his share of the profits. That is the income liable to tax under UK law, to the extent that it is remitted to the UK. [The taxpayer’s] liability to UK tax is therefore computed by reference to the same income as was taxed in the US. Accordingly, he qualifies for double taxation relief under [treaty] article 23(2)(a).

The judgment is available on the Supreme Court’s website.

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