Mr Anson (Taxpayer) Wins : Other Taxpayers look to lose

The complexities of Double Taxation loom gain in our multinational global economy.

Has every investor in a foreign entity thought through the implications of the case of Anson v Revenue and Customs Commissioners?

Historically, HMRC have treated entities such as Delaware LLC’s as legal entities separate and distinct for tax from the identity of investors in it.  Bearing in mind ‘LLC’ stands for ‘Limited Liability Company’, this was perhaps unsurprising!  However, the Supreme Court has now decided, in the Anson case, that in fact such entities are more akin to Partnerships.  This means Mr Anson was entitled to double tax relief on the tax paid by the LLC.  Significantly though, it also means, logically, that he should suffer UK income tax on the proportion of profits which would be ‘attributed’ to him.  Bearing in mind such investors may have historically followed what they thought to be UK HM Revenue and Customs guidelines, and only declared income for tax when ‘distributed’, where does that leave them now?

A review of individual circumstances would seem sensible ~ so as to come up with a strategy on how best to move forward.

When HMRC win they (obviously) say – well that was the ‘correct’ view of the law all along.  If (as here) they lose though, presumably no-one should be punished for following their original views?

Both US and UK advisors need to think about how best to report matters from now on.


Prevailing Practice becomes Harder to Apply

“Prevailing Practice” prevents HMRC from recovering underpaid tax which has arisen from over claimed reliefs provided that the claims were made through practice prevailing at the time.

The recent case of Boyer Allen Investment Services v HM Revenue & Customs may make the application of prevailing practice more restrictive than previously thought.  The ‘prevailing practice’ in question was the tax treatment of contributions to an EBT prior to the case of Dextra.

The tribunal dismissed the company’s appeal on the basis that “to be a practice, it must be something capable of being clearly articulated, and articulated not just by the Revenue, or just by taxpayers’ advisers, but by both, and by both in the same terms”.

The Tribunal also noted that there is a difference between what simply happens in practice and the identification or establishment of a particular practice.  A common misunderstanding of the legislation cannot therefore give rise to a “prevailing practice”.

The taxpayer lost because th Tribunal did not believe that advisers would have been able to articulate HM Revenue & Customs’ supposed practice and it was agreed that there was a common misunderstanding of the interpretation of the rules by both HM Revenue and Customs and the tax profession.