UK: Anson V. HMRC: Another Approach To LLCs

On July 1st, 2015 the UK Supreme Court released its judgment in the case of Anson v. Commissioners for Her Majesty's Revenue and Customs (Anson),1 in which the issue was how a taxpayer's interest in a Delaware limited liability company (LLC) should be treated under UK tax law. The Court's decision has received a great deal of attention in the UK, as it contradicts, to a certain extent, Her Majesty's Revenue and Customs (HMRC)'s historic position that an LLC should be treated as "opaque" for UK tax purposes.

The facts in the case may be summarised as follows. The taxpayer in the case (Anson) was a non-domiciled UK resident and member of an LLC which carried on the business of managing venture capital funds in the US. The LLC was treated as a partnership for US tax purposes and thus, a transparent entity for US tax purposes, meaning that the partners were liable to tax on its income, rather than the LLC itself. Anson received distributions from the LLC (net of non-resident withholding tax which was applied against his US tax owing in respect of the LLC's income) and "remitted" them to the UK, causing them to be included in his income subject to UK tax.2 When Anson claimed double taxation relief under Article 23(2)(a) of the 1975 UK/US Double Taxation Convention (the Treaty) and its successor, Article 24(4)(a) of the 2001 UK/US Double Taxation Convention, the HMRC refused to provide a credit for the US taxes paid on the LLC's income. These provisions stated that "United States tax payable under the laws of the United States [...] on profits or income from sources within the United States (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against United Kingdom tax computed by reference to the same profits or income by reference to which the United States Tax is computed." According to the HMRC, Anson had paid taxes in the US on the income of the LLC, and in the UK on the distributions declared by the LLC. These were two separate sources of income and so the "profits or income" subject to tax in the two jurisdictions were consequently not "the same". As noted by the UK Supreme Court in its reasons, the result was that Mr. Anson paid an effective tax rate of 67% on the income derived from the LLC.3

Experts before the First Tier Tribunal (FTT) testified that the agreement governing the LLC (LLC Agreement) in issue and the Delaware Limited Liability Company Act (LLC Act) provided the members of the LLC with a right to its profits "as they arose" and not only upon the declaration of distributions. A "limited liability company interest" was defined under the LLC Act as "a member's share of the profits and losses of a limited liability company and a member's right to receive distributions of the limited liability company's assets." Section 4.1 of the LLC Agreement, for its part, provided that the members' capital accounts must be credited by an amount equal to all gross income earned in a period, and section 5.1 stated that the "excess of income and gains over losses, deductions and expenses" must be distributed to the members on a quarterly basis.4 Accordingly, there was income from a single source (the underlying business income) and not two sources of income (i.e. income from business earned by the LLC and income from property earned by Anson).

HMRC appealed to the Upper Tier Tribunal (UTT). The UTT considered the appeal in light of Memec plc v. Inland Revenue Commissioners (Memec)5, in whichthe Court of Appeal had concluded that a member of a German "silent partnership" did not have a proprietary interest in the partnership's property, and could therefore not be considered to have received dividends paid to the partnership for purposes of the UK-Germany Tax Treaty. The UTT held that, as in Memec, the assets were the LLC's assets. Accordingly, the LLC was "opaque" and Anson's income consisted of distributions declared on his membership interest in the LLC (i.e. income from property), rather than income from the business carried on by the LLC. Anson appealed this decision to the Court of Appeal, which upheld the UTT's conclusions, based largely on the reasons adopted by the UTT.

Before the UK Supreme Court, Anson argued that the parenthetical in Article 23(2)(a) (reproduced above), which excluded relief for taxes paid by a corporation paying dividends to a UK-resident, suggested that the underlying tax paid by an entity making distributions could otherwise be covered by the provision. The Court disagreed. It analysed the history of the relevant treaty provisions, noting that the 1945 version of the Treaty had provided explicitly that the UK must grant a foreign tax credit for the tax paid by a US company when taxing its residents on dividends paid by such a company. The point of the parenthetical was merely to highlight that this would hitherto no longer be the case.

The Court then went on to consider the Crown's argument (which had been accepted by the UTT and the Court of Appeal) that Memec prevented a finding that the distributions and income of the LLC were the same item of "profits or income" for the purposes of the Treaty. According to the Court, Memec concerned a different issue than Anson, namely, whether a dividend received by a partnership could be considered to have been received by its partners (the case dealt with a provision of the UK-Germany Tax Treaty requiring the UK to grant a foreign tax credit for German tax paid by a corporation where it paid dividends to a UK-resident corporation holding a significant interest in the payer – in other words, the question whether the taxpayer had received the dividend paid to the silent partnership). It made sense in this context to ask who had a property right in the dividend since the notion of "profits or income" used in Article 23(2)(a) was a more abstract one, and not dependent on who owned the cash in which such profits or income might be embodied.

Like the FTT, the Court was ultimately of the view that whether or not the profits and distributions of the LLC represented the same item of "profits or income" or two different sources, depended on whether Anson's income arose when profits were earned by the LLC, or only when they were distributed by the LLC. The Court adopted the former view, basing itself largely on the findings of fact made by the FTT regarding the LLC Act and the provisions of the LLC Agreement providing that its profits must be distributed on a quarterly basis to its members. Accordingly, Anson's appeal was allowed.

Following the decision in Anson, HMRC published its response on September 25, 2015 stating that "the decision is specific to the facts found in the case [which] means that where US LLCs have been treated as companies within a group structure HMRC will continue to treat US LLCs as companies, and where a US LLC has itself been treated as carrying on a trade or business, HMRC will continue to treat the US LLC as carrying on that trade or business".6 HMRC therefore did not revise its general approach to the categorization of US LLCs for UK tax purposes. HMRC also added that double tax relief claims by UK individuals with income arising through a US LLC would be considered by HMRC on a "case-by-case" basis.

Anson is similar to TD Securities (USA) LLC v. R.7 in the sense that it challenges the traditional view that an LLC and its income must be treated as being distinct from that of its members. Nevertheless, it is not clear how big an impact the decision will have in Canada. The UK Supreme Court's reasoning was not based on the view that an LLC is not a corporation or that LLCs should be treated as fiscally transparent entities for general UK tax purposes, but rather on the particular wording used in Article 23(2)(a) of the Treaty, the LLC Act and the LLC Agreement. Moreover, the legislative context surrounding the Canadian foreign tax credit regime is quite different from the one established by the Treaty. Subsection 126(2) of the Income Tax Act explicitly states that a credit for "business-income tax" may only be claimed by a taxpayer in respect of a business carried on by the taxpayer.8 That leaves only subsection 126(1), subsection 20(11) and subsection 20(12) in the case of an individual shareholder such as Anson. Interestingly, for the purposes of subsection 20(11), the CRA has historically taken the view that tax paid by the members of an LLC on its income may be considered to be "in respect of an amount that has been included in computing [their] income for the year" where the LLC distributes its income to the members and is included in income as a dividend (to some extent echoing the reasoning underpinning the UK Supreme Court's decision in Anson).9 Because the term "non-business income tax" is essentially defined as any tax other than "business-income tax" or an amount of tax deductible under subsection 20(11) or deducted under subsection 20(20), the result is that only 15% of the income earned by the LLC may be considered to be "non-business income tax" of the taxpayer and eligible for a credit under subsection 126(1).

It will be interesting to see how the UK Courts and those of other countries apply and interpret Anson, and more particularly, whether they follow its lead in granting recognition for certain purposes of the flow-through nature of LLCs and other similar foreign entities.


1. Anson v. HMRC, [2015] UKSC 44.

2. As a non-domiciled person, Anson was liable to tax in the UK on all after tax payments from foreign sources repatriated ("remitted") to the UK.

3. He paid tax in the US at a rate of 45% on his share of the LLC's profits, and then paid tax in the UK at a rate of 40% on the remaining 55% "remitted" to the UK.

4. Anson, supra, note 1, p. 3.

5. Memec plc v Inland Revenue Commissioners,[1998] STC 754.

6. Revenue and Customs Brief 15 (2015) : HMRC response to the Supreme Court decision in George Anson v. HMRC (2005) UKSC 44.

7. 2010 D.T.C. 1137.

8. The preamble to subsection 126(2) states that a credit may be claimed "[w]here a taxpayer who was resident in Canada at any time in a taxation year carried on business in the year in a country other than Canada [emphasis added]." Moreover, the credit is defined in paragraph 126(2)(a) as being a function of "the business-income tax paid by the taxpayer for the year in respect of businesses carried on by the taxpayer in that country [emphasis added]," and the term "business-income tax" is defined in subsection 126(7) as tax paid by a taxpayer for a taxation year in respect of businesses "carried on by the taxpayer".

9. See e.g. Technical Interpretation 9613405 "Foreign accrual tax – limited liability company" (January 17, 1997) and Technical Interpretation 2013-0480371C6 "US LLCs and 20(11)" (June 10, 2013). A somewhat similar approach is taken in the case of a Canadian corporate shareholder of an LLC. US taxes paid by a member of an LLC on the passive income of the LLC are considered by the CRA to be "applicable" to distributions declared out of taxable surplus by the LLC in favour of the member for the purposes of paragraph 113(1)(c) (see e.g. Technical Interpretation 9703535 "Foreign affiliates – Dividend deduction" (March 10, 1998)).

To view the original article please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.