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It's hard to imagine in this age of global harmony, but sometimes the US and the UK really don't get along very well. I'm talking of course about the US limited liability company (or LLC) and how it can be a very unfriendly vehicle for a UK resident individual to invest, or take a stake, in a business.
We've written previously about the tax issues we see on M&A transactions with a transatlantic aspect. UK residents might be offered the 'opportunity' to take a stake in an LLC without realising that this is in fact an opportunity to pay swingeing double tax - in the US and the UK - on income and gains generated by the business.
Well, the Government is giving us a glimmer of hope that they might address the issue by launching a consultation which is open for seven weeks. The centrepiece (or if you prefer: centerpiece) proposal is that the UK Government might align the UK treatment of LLCs and make them tax transparent in the UK if they're tax transparent in the US. This has the potential to dramatically reduce the overall tax paid by a UK resident on income and gains made through their holding in an LLC. By aligning how the two systems see income / gains, it becomes possible for the UK resident investor to get credit for US tax paid. This would therefore reduce or even eliminate the scope for double taxation.
We're nowhere near a settled solution on this, so no one should get their hopes too high just yet. The Government's tentative suggestion of aligning US / UK treatment still doesn't eliminate the admin burden, because that's mostly a matter of US law; US tax relating to an LLC business isn't automatically collected on behalf of UK tax residents, they still have to file a US tax return. And the present consultation only applies to individuals not corporates (due to there being complex existing regimes for corporates that are harder to unpick). But nonetheless this indicates that the Government is taking seriously the deep inequities that can arise from perfectly innocent / vanilla structures whenever UK and US individuals dare to work together.
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