A Swift Clarification is Needed

A recent tax case involving an individual’s double tax relief claim could have significant implications for UK multinational groups with a US limited liability company (LLC) in their structure.

Although the case was made by an individual (Mr Swift) in respect of double tax relief, its implications for groups of companies with US (and indeed other) LLCs are significant. This is because until now, it has been accepted that US LLCs are treated as if they were companies - in particular that they may have the equivalent of share capital if they issue members’ certificates, and that income paid to members is treated as a dividend. This case casts doubt on that understanding and HMRC will be appealing the decision. In the meantime, HMRC will continue to treat LLCs in the same way as before.

Why is this decision important for UK groups with interests in US LLCs?

The decision is important because various groups reliefs, the dividend exemption and substantial shareholdings will rely on the LLC being regarded as a company for UK tax purposes.

The fact that HMRC will continue to treat LLCs in the same way as before, pending their appeal, is helpful. However, it may nevertheless be a sensible precaution to make changes to the LLC agreement to ensure it has the right characteristics to ‘qualify’ as a company.