The taxpayer, who was resident in the UK, paid US income taxes on his share of the profits of an LLC of which he was a member, and also paid UK income taxes on income remitted to the UK including such share of the LLC's profits. He would have been entitled to relief under Art. 23 of the UK-US Double Tax Convention from UK tax on such profits if the UK tax was "computed by reference to the same profits or income by reference to which the United States tax [was] computed."
The First-tier Tribunal ("FTT") found that the combined effect of the Delaware LLC Act and the LLC agreement made between the members was that under the law of Delaware, the members automatically became entitled to their share of the profits generated by the business carried on by the LLC as they arose: prior to, and independently of, any subsequent distribution (para.119), so that Mr Anson was taxed on the same income in both countries, and was entitled to double taxation relief under Art. 23.
This finding was reversed by the Upper Tribunal, whose decision was affirmed by the Court of Appeal, but was restored by the Supreme Court.
The Upper Tribunal construed the FTT's finding, that the profits "belonged" to the members as they arose, as a legally erroneous finding that the profits vested in the members as their property. However, Lord Reed found that when the FTT described the profits as belonging to the members it was referring to a personal right rather than a proprietary right (such as that of the members of a Scottish partnership).
Therefore, contrary to the Commissioners' submissions that the profits generated by the LLC belonged to it and income to Mr Anson arose only as and when profits were distributed, the FTT found that the members of the LLC had an interest in the profits of the LLC as they arose. Accordingly, Mr Anson was entitled to the share of the profits allocated to him, rather than receiving a transfer of profits previously vested (in some sense) in the LLC.
Thus, the "income arising" in the US, being his share of the profits, was income liable to tax under UK law, to the extent that it was remitted to the UK, so that his liability to UK tax was computed by reference to the same income as was taxed in the US, and he was entitled to relief under Art. 23(2)(a) (para. 121)..
Before so concluding, Lord Reed stated (at para. 114):
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.