Last week the Supreme Court handed down judgment in Anson (Appellant) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) [2015] UKSC 44. Anson was a member of a Limited Liability Company (“the LLC”) established in Delaware and paid US Federal and state taxes on the profits he received as a member of the LLC. Anson then remitted the balance of the profits after US tax to the UK. HMRC decided that he was liable to UK income tax, denying his claim to double taxation relief (“DTR”) on the basis that the profits taxed in the US were not his income but that of the LLC. The Supreme Court has now decided this was a violation of article 23(2)(a) of the UK-US Double Taxation Convention 1975 (prohibition of double taxation).
The First Tax Tribunal (“FTT”) had previously looked at the LLC agreement and its governing act and found that the profits of the LLC belonged to the members as they arose. The income had therefore belonged to Anson when it was taxed in the US and Anson was being taxed on the same income in the UK.
The Upper Tribunal reversed the decision of the FTT on the basis that the FTT had found a proprietary interest which was not evident on the facts. According to the Upper Tribunal, in the absence of such a right the profits were owned by the LLC and so Anson was not entitled to any DTR in the UK. The Court of Appeal upheld the Upper Tribunal’s decision but for different reasons, applying Memec plc v Inland Revenue to determine the source of the profits.
The Supreme Court has now agreed with the conclusions of the FTT, rejecting the Court of Appeal’s interpretation of Memec and the findings of the Upper Tribunal.
This article appears in the JHA July 2015 Tax Newsletter, which also features:
