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UK Tax Position on US LLCs

Historically there has been a total mismatch between the UK and the USA on the tax treatment of US LLCs.

 

In the USA tax transparent with members being taxed on profits arising and so being required to register under the USA tax system
In the UK taxed as a company with members being taxed on profits withdrawn as if dividends but with no matching tax credit

This had lead to UK investors being “forced” to invest through companies to ensure that they could match USA and UK tax liabilities.  The last Budget complicated this by effectively removing entrepreneurs’ relief from shares in such companies.

The UK Supreme Court (Anson v Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44) has ruled that  a US LLC incorporated in Delaware can be taxed in the UK as a partnership. This means that a UK resident member of such an LLC is now taxed in the USA and the UK on the same income at the same time and is able to claim a double tax credit.

This is good news for UK investors in the USA  - as long as HMRC does not seek to argue that LLC’s in other states should be taxed differently(!)

The only issue I now have is whether and if so how to unravel the corporate holding structures put in place to cope with the previous tax mismatch.

 

 

Date: 1st July, 2015
Author: Cathy Corns

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