On 25 September 2015, HMRC issued Revenue and Customs Brief 15 (2015) setting out its response to the UK Supreme Court’s decision regarding hybrid entity classification in Anson. HMRC has, after “careful consideration” formed the view that “the decision is specific to the facts found in the case”. Consequently:
- where a US LLC has been treated as a company within a group structure HMRC will continue to treat the US LLC as a company, 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 a trade or business.
- HMRC proposes to continue its existing approach to determining whether a US LLC should be regarded as issuing share capital.
- HMRC will consider individuals claiming double tax relief and relying on the Anson v HMRC decision on a case by case basis.
My comment on this latest development follows.This approach has the benefit of exhibiting a certain earthy pragmatism because, where a taxpayer has in the past (or would, in the future, using the Memec-based approach which HMRC adopted prior to the Supreme Court’s decision in Anson) filed tax returns on the basis a LLC is opaque it may continue to do so. Yet, HMRC has also clearly acknowledged that, if a taxpayer wishes to do so, it is open to the taxpayer to argue for ‘transparent’ treatment where the facts can support such a characterisation.
However, if the facts are sufficiently close to those in Anson, relying on HMRC’s practice when seeking an “opaque” characterisation is unwise because the legal basis for HMRC’s stance seems decidely shaky – there is already ample precedent for the courts to set aside a convenient deal with a UK taxpayer where HMRC acts ultra vires in agreeing to that deal, or where HMRC grants an extra-statutory concession. A UK taxpayer who:
- wishes to achieve certainty with respect to a future investment would be well advised to take care over the way in which the documentation governining the constitution and operation of a hyrbid entity is drafted; and
- is an individual and would prefer ‘transparent’ treatment with respect to past (or current) investment may wish to review the documentation governing his or her investment a hybrid entity to see whether there is scope to claim double taxation relief.