Weekly Tax Update - July 6, 2015

1 GENERAL NEWS

1.1 Publication of Finance Bill

The Finance Bill to be introduced by the Summer Budget on 8 July will be published on 15 July.

www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2015-06-30/HCWS72

1.2 Supreme Court - Anson and UK tax treatment of income from US LLCs

The Supreme Court has overturned the Court of Appeal decision in Anson, with the result that Mr Anson will be entitled to double tax relief on his share of a US LLC's (Limited Liability Company) profits for the UK tax years running from 6 April 1997 to 5 April 2004. In the US, LLC partners are effectively treated as receiving taxed partnership profits (ie transparent for tax purposes), whereas in the UK the LLC is viewed as being opaque so that LLC members are treated as receiving dividend income from the LLC. Up to now double tax relief for UK individuals in receipt of US LLC profits already taxed in the US has been denied as what was received was deemed by HMRC to be a different source of income from the profits of the LLC (ie as a separate distribution from the capital interest in the LLC).

The implications of this case for the UK tax treatment of distributions from US LLCs received by UK taxable individuals and companies may, however, depend on the provisions of the US LLC agreement.

HMRC guidance at DT19853A on the application of relief for US taxes suffered treats US LLCs as taxable entities that are fiscally opaque rather than fiscally transparent; in other words, more like a company than a partnership. Under that guidance, a UK resident member is treated as receiving distributions of profits, similar to a dividend from a company, rather than being entitled to the income as it arises as in the case of a partnership. This guidance may now need updating.

The Supreme Court decision took significant note of the First-tier Tribunal's (FTT) findings of fact in assessing whether the LLC profit allocation was corporate or partnership in nature, with the outcome in this case that it was viewed as partnership profit.

It disagreed with the Upper Tribunal's comment that the US LLC's profits could not belong to the members as they had no proprietary rights in the assets. They preferred the view of the FTT that conceptually, profits and assets are different and that the combination of the application of Delaware law and the LLC agreement meant that the profits belonged to the members.

It also criticised the Court of Appeal's focus on whether Mr Anson had proprietary rights in the LLC profits, instead of determining whether the UK tax was computed by reference to the same profits or income by which US tax was computed.

The Supreme Court distinguished the Anson case from the decision in Memec (Memec plc v Inland Revenue Comrs [1998] STC 574) by distilling the issue to one of whether or not the LLC profit was income of its members. The Memec case considered whether or not there were proprietary rights to income of a German silent partnership that enjoyed distributions from third party companies. That case concluded Memec plc's rights in the partnership were a separate source for the purpose of the UK/German treaty, rather than Memec plc having proprietary rights in the subsidiaries of Memec gmbh or their dividends.

There was some discussion of the interpretation of 'same' in the context of the same profits. A pragmatic approach was considered appropriate, so that "profits on which foreign tax is computed and in respect of which relief can be claimed are not confined to those arising under UK tax principles in individual UK chargeable periods".

It will be interesting to see what wider impact this case has in other areas where there are differences in the way in which tax computations are carried out in different countries, for example where there are different matching rules for securities under CGT.

www.bailii.org/uk/cases/UKSC/2015/44.pdf

2 PRIVATE CLIENT

2.1 Scottish land reform bill

The Land Reform (Scotland) Bill was introduced to the Scottish parliament on 22 June 2015. Amongst the measures included in the bill is the requirement that shooting estates and deer forests are entered onto the valuation roll from April 2017, with the implication that rates will be payable on these land categories from that date.

Landowners of sporting estates stopped paying business rates in 1994 after being given an...