
James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Author: James F. McDonough
Date: October 29, 2015
Of Counsel
732-568-8360 jmcdonough@sh-law.comMuch ado has been made about the use of hybrid entities that are viewed as flow-through (transparent) or disregarded in one jurisdiction but are separate taxpayers or non-transparent in the other jurisdiction.
A United Kingdom (U.K.) resident (Anson) ran his United States (U.S.) consulting business through a Delaware limited liability company. Mr. Anson was personally responsible for and paid income taxes on his U.S. earnings. The Commissioners of Her Majesty’s Revenue & Customs (“HMRC”) sought to impose tax on the remittance to the U.K. and denied Mr. Anson a credit for tax paid to the U.S.
HMRC denied the credit on the grounds that the remittance was not the same as the income from business profits recognized in the U.S. The HMRC position was that business income is different than remittance which is akin to a dividend. The HMRC position is based upon its view that a limited liability company is a corporation, thus a separate person. Perhaps, this position is overstated as each limited liability company (LLC) is evaluated on facts and circumstances. The income reported in the U.S. was taxed to an individual who is taxed in the U.S. on the profits earned by a transparent entity. The view of HMRC was that the entity did not earn the income and individual members of U.S. LLCs are taxed on profits when earned and not when distributed. Fortunately for Mr. Anson, the U.K. Supreme Court held that he was entitled to the tax credit.
One can anticipate other cases if the U.K. revenue authorities continue to adhere to this position. Under the U.S. – U.K. income tax treaty, royalties paid to a U.K. resident corporation from the U.S. are exempt from withholding if a U.K. corporation does not have a permanent establishment in the U.S. Suppose the U.K. corporation interposes a U.S. limited liability company between itself and the payer. If one extends the position taken in Anson, the royalty would not qualify because the LLC is not a resident of the U.K. and it is not the payer of the royalty. Disputes might arise in other areas, such as withholding on interest, dividends, branch profits as well as the exemption for international transportation.
It is particularly important to note that a tax treaty does not always harmonized the treatment of hybrid entities.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Author: Dan Brecher
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
Author: Dan Brecher
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Author: Brian D. Spector
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Author: Christopher D. Warren
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
Author: Scott H. Novak
On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]
Author: Matthew F. Mimnaugh
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!