UK Taxation of Non-UK Entities: UK Supreme Court Rules for First Time on Entity Classification for UK Tax Purposes – Is a Delaware LLC “Tax-Transparent”?

Sullivan & Cromwell LLP - 13 July 2015

Whether a non-UK entity such as a Delaware limited liability company is treated as transparent or opaque for UK tax purposes can make a significant difference to the amount and timing of tax incurred by a UK taxpayer investing in it.  The UK Supreme Court recently reversed the decisions of the Court of Appeal and the Upper Tribunal that a Delaware LLC should be treated as opaque for UK foreign tax credit purposes.  The decision avoids economic double taxation and is the first time the UK’s most senior court has ruled on tax “transparency” issues.  The LLC in this case does not seem to have had any particularly unusual features.
This memorandum sets out some of the issues that a UK taxpayer considering an investment in an LLC will need to consider following the (somewhat unexpected) decision in this case.  UK taxpayers face similar issues when considering investment in other non-UK entities that are not clearly equivalent to companies formed under English law.