The concept of opacity can be rather unclear…


On 1 July 2015, the UK’s Supreme Court released its long-awaited judgment on the Anson case. The case is of great importance to any UK taxpayer who is a member of an LLC, a type of limited liability company that can be created in the US.

LLCs create tax complications for UK taxpayers because of a potential mismatch between their tax treatment in the US and in the UK. In the US, the default treatment of an LLC is as a partnership, ie as a “transparent” entity whose profits are not taxable on the entity itself, but on its members. By contrast, in the UK, HMRC has up to now taken the position that an LLC is “opaque”, ie an entity which is taxable in its own right. This has been HMRC’s position since it issued internal guidance, following the Memec case, on the classification of entities for UK tax purposes.

Mr Anson, a UK resident non-domiciliary, was a member of a Delaware LLC which carried on its business of managing a number of venture capital funds in the US. Under US tax law, the LLC was classified as a partnership, the profits of which were liable to taxation in the hands of its members on an arising basis. Mr Anson received payments from the LLC representing his share of its profits. After paying US tax on those profits, he remitted the balance to the UK. In claiming double taxation relief, it appears Mr Anson expected to be able to set the US tax paid on his share of the LLC’s profits against the UK tax that would be charged on a remittance of these sums to the UK, under the US/UK income tax treaty.

Unfortunately for Mr Anson, however, HMRC took the position that the payments received by him from the LLC were, in substance, dividends. In HMRC’s analysis, Mr Anson had been taxed in the US on one kind of receipt (trading profits) and he was now being taxed in the UK on a different kind of receipt (foreign dividends). His ability to claim a credit for US tax under the treaty depended on the tax in the US and the UK being computed by reference to the same income. HMRC’s view was that the tax charges were on different kinds of income, so that there was no credit under the treaty. The result of that analysis was a combined effective rate of tax approaching 67%.

Unsurprisingly, Mr Anson decided to litigate.


The First Tier Tribunal heard expert evidence from Delaware lawyers regarding the interpretation and effect of the members’ agreement governing the LLC and the Delaware statute which governs Delaware LLCs generally. It found that the members’ agreement and the statute had the combined effect that the members of the LLC were entitled to the company’s profits as they arose.

Accordingly, the First Tier Tribunal held that Mr Anson was entitled to credit relief under the treaty. This was contrary to HMRC’s long-standing position that LLCs are “opaque” for UK tax purposes.


HMRC appealed to the Upper Tier Tribunal. The Upper Tier Tribunal considered the situation in light of the Memec judgment. In Memec, the Court of Appeal concluded that a participator in an entity established under foreign law was not taxable on the income of that entity as it arose. A significant factor in that conclusion was the fact that, on the evidence at hand, the participator did not have a proprietary interest in the income. In Anson, the Upper Tier Tribunal held that Mr Anson could not possibly have a proprietary interest in the LLC’s profits, as the assets used by the LLC for its business were, as a matter of law, its own assets.

Accordingly, in the Upper Tier Tribunal’s view, HMRC’s classification of an LLC as “opaque” was correct. Mr Anson could not have an entitlement to a share of the LLC’s profits as they arose because such profits belonged to the LLC itself. What Mr Anson had received were distributions of the LLC’s profits which were taxable in the UK as dividends. There was no tax credit under the treaty because the US and the UK tax were on different things.

The Court of Appeal held the same view. Mr Anson appealed to the Supreme Court.


The Supreme Court considered that the two lower appellate courts had been wrong to focus on whether Mr Anson had a proprietary interest in the LLC’s profits. This was a red herring. The question that needed to be asked was whether, under the members’ agreement and the Delaware statute, Mr Anson was entitled to a share of the profits of the LLC’s trade, so that he was taxable on such share of the profits in the UK whether or not the profits were distributed out of the LLC. The First Tier Tribunal had found that he was. This did not depend on Mr Anson having a proprietary interest in the profits or indeed in the assets of the LLC. It was a non-sequitur to say that the absence of a proprietary interest meant there was no entitlement to a share of the profits.

Accordingly, the Supreme Court reversed the decision of the Court of Appeal and upheld that of the First Tier Tribunal. It held that as a matter of UK tax law, the members of the LLC were between them entitled to the profits of the LLC as they arose, and therefore credit relief was available to Mr Anson.


The implications of the Supreme Court decision include the following:

  • Individuals who hold an interest in an LLC and have been subject to previous double taxation (ie tax in the UK on distributions from the LLC without credit for US tax paid on profits) may now be entitled to a tax rebate. Going forward, credit relief may be available.
  • Some remittance basis users may have decided not to remit distributions received from LLCs into the UK to avoid the effective double taxation encountered by Mr Anson. The Supreme Court decision may lead them to reconsider their position.
  • A UK corporate member of an LLC may have to pay UK corporation tax on the profits of the LLC, subject to relief, even where the profits are accumulated and reinvested within the LLC.
  • HMRC will need to re-consider its internal guidance on entity classification.

The consequences are therefore far-reaching, although they should not be over-stated or over-simplified. It is worth stressing that the Supreme Court decision does not mean that an entity which is “transparent” for the purposes of a foreign tax, by reason of a deeming provision in the relevant tax code, is necessarily “transparent” for UK tax. Whether the entity is “transparent” for the purposes of UK taxation is a question of fact, depending on the provisions of the entity’s governing documents and any relevant statute. Thus, the Anson decision will not necessarily apply to all companies that are treated as partnerships for US tax, and may not even apply to all Delaware LLCs.

As a first step, we would suggest that any UK taxpayer who is a member of an LLC, whether an individual or a company, should seek legal advice on the terms of the members’ agreement, to determine the impact of the Anson case and whether any changes to the agreement should be made.