The Supreme Court has held that under the UK/US Double Taxation Convention a US resident was entitled to double taxation relief on income he remitted to the UK from the US.
The question was whether the UK tax was “computed by reference to the same profits or income by reference to which the United States tax is computed”. During the relevant period the appellant was a member of a Delaware limited liability company (“the LLC”), classified as a partnership for US tax purposes, and was liable to US federal and state taxes on his share of the profits. He remitted the balance to the UK and was liable to UK income tax on the amounts remitted as “income arising from possessions outside the UK”, subject to any double taxation relief. The respondents decided that he was not entitled to double taxation relief as the income taxed in the US was not his own, but that of the LLC.
The Supreme Court unanimously held for the appellant as follows:
- Under the Convention it was necessary to identify the profits or income by reference to which the taxpayer’s UK tax liability was computed, primarily a question of UK tax law. Next one should identify the profits or income from sources within the US on which US tax was payable under the laws of the US and in accordance with the Convention. That was primarily a question of US tax law. Then it was necessary to compare the profits or income in each case and decide whether they were the same.
- The members of the LLC had an interest in the profits of the LLC as they arose. The appellant was therefore entitled to the share of the profits allocated to him, rather than receiving a transfer of profits previously vested in the LLC. Consequently, his “income arising” in the US was his share of the profits. That was the income liable to tax under UK law, to the extent that it was remitted to the UK. The appellant’s liability to UK tax was therefore computed by reference to the same income as was taxed in the US. Accordingly he qualified for double taxation relief.
Anson v Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44, 1 July 2015
