Foreign Tax Credits

In a recent decision of the UK Upper Tribunal Tax and Chancery Chamber, the court reversed a lower court decision that held that a Delaware limited liability company ("LLC") should be characterized as a partnership or transparent entity for UK income tax purposes. In a case entitled The Commissioners for Her Majesty's Revenue and Customs and George Anson, the upper court concluded that an LLC is not transparent and, thus, a UK individual investor in the LLC could not obtain a credit for US taxes paid by the LLC on the UK investor's share of profits from the LLC. This decision reinstates a long held view of the UK revenue authorities that a LLC is not transparent for UK income tax purposes. A lesson to be derived from this case is the lack of precision, notwithstanding detailed explanations, in the terminology in the US' income tax treaties.