For many years, both the Canada Revenue Agency (CRA) and Her Majesty’s Revenue and Customs (HMRC) have treated limited liability companies (LLC) formed under Delaware law as hybrid entities, in that a LLC has been “opaque” for the purposes of domestic tax law despite being generally disregarded or treated as a partnership for United States tax purposes.
Hybrid entities, including LLCs, are due to be somewhat of a hot topic next month because, as part of its Base Erosion and Profit Shifting (BEPS) project, the OECD is due to present its recommendations to the G20 Finance Minister in relation to “Action 2: Neutralizing the effects of hybrid mismatch arrangements”. However, over the summer the United Kingdom Supreme Court has stepped into the fray in its decision in Anson v. Commissioners for Her Majesty’s Revenue and Customs ( UKSC 44).
This decision emphasizes that entity classification for international tax purposes is highly dependent on the facts and the governing law applicable to the entity, despite guidance from tax authorities that prefers to apply a “one size fits all” approach. As discussed below, the Anson decision may create renewed interest and support for taking a tax position that diverges from the traditional opaque characterisation of a US LLC.