Anson - UK Supreme Court finds that an LLC member had a personal (non-proprietary) entitlement to his share of LLC profits as they arose rather than only when they were distributed to him

The First-tier Tribunal made a finding that profits of a Delaware LLC belonged to the members as they arose, so that a UK member (Mr Anson) was taxed on the same income in both countries, and was entitled to double taxation relief under the applicable provision in the US-UK Treaty.

Lord Reed, speaking for the UK Supreme Court, has confirmed this approach. However, at the same time he found that such right of the members to their share of the profits was a personal right - rather than a proprietary right (such as that of the members of an English or Scottish partnership).

It is not at all clear that this decision should be neatly summarized as finding that an LLC (or, at least, the LLC in this case) is fiscally transparent. The findings suggest a continuum, starting with an English partnership, followed by a Scottish partnership (which, like many US LPs but unlike an English (or Canadian) partnership has legal personality but whose members, like a conventional partnership have, at least collectively, a proprietary interest in the partnership assets), an LLC (with a personal but not proprietary right of the members to the profits as they arise), and a conventional corporation. The current CRA position (at least before considering this case) is that most or all LLCs are fiscally opaque (see 25 October 1994 T.I. 941750, and see also TD Securities).

The relevant Treaty provision required that the UK tax on the LLC distributions be "computed by reference to the same profits or income by reference to which the United States tax [was] computed." Lord Reed stated:

The words "the same" are ordinary English words. ...[A] degree of pragmatism in their application may be necessary...for example where differences between UK and foreign accounting and tax rules prevent a precise matching of the income by reference to which tax is computed in the two jurisdictions.

The same pragmatic approach is appropriate in applying the exclusion from the anti-hybrid rule in Art. IV, para. 7(b) of the Canada-US Treaty that is available where income derived from a hybrid entity is treated the same as if the entity were not a hybrid.

Neal Armstrong.  Summary of Anson v. HMRC, [2015] UKSC 44, under Treaties – Art. 24, Art. 3.