Introduction

Anson v. Revenue and Customs ([2015] STC 1777) is a landmark judicial decision by the United Kingdom Supreme Court that delves into the complexities of double taxation agreements, particularly in the context of cross-border income derived from Limited Liability Companies (LLCs). The appellant, Mr. Anson, a UK resident but non-domiciled individual, was a member of a Delaware LLC classified as a partnership for US tax purposes. This classification subjected him to US federal and state taxes on his share of the profits, while the UK deemed him liable for taxes on his UK-sourced income and any foreign income remitted to the UK. The crux of the case revolved around whether Mr. Anson was entitled to double taxation relief under the UK-US Double Taxation Conventions of 1975 and 2001.

Summary of the Judgment

The case traversed multiple judicial levels, starting with the First-tier Tribunal (FTT) which sided with Mr. Anson, determining that the profits of the LLC belonged to its members as they arose, thereby justifying double taxation relief. The Commissioners appealed this decision to the Upper Tribunal, which reversed the FTT's findings, leading to a further appeal by Mr. Anson to the Court of Appeal. The Court of Appeal upheld the Upper Tribunal's decision, emphasizing that the profits remained with the LLC and only distributions constituted taxable income for Mr. Anson. However, upon reaching the Supreme Court, the final judgment favored Mr. Anson, reinstating the FTT's original conclusion. The Supreme Court interpreted the double taxation conventions in accordance with the Vienna Convention on the Law of Treaties, affirming that Mr. Anson was indeed entitled to double taxation relief as his UK tax was computed by reference to the same income on which US tax was levied.

Analysis

Complex Concepts Simplified

Several intricate legal concepts are pivotal to understanding this judgment:

• Double Taxation Agreement (DTA): A treaty between two countries to ensure that income is not taxed twice. It defines where taxes are applied and how tax credits are earned.
• LLC Classification: In the US, an LLC can be treated as a partnership for tax purposes, meaning profits are passed through to members who then report them on their personal tax returns.
• Source of Income: Determining which country's laws define where the income originates, which affects taxation rights.
• Proprietary vs. Contractual Entitlement: Proprietary entitlement refers to ownership rights over assets or profits, whereas contractual entitlement pertains to rights defined by agreements or contracts.
• Vienna Convention on the Law of Treaties: An international agreement that provides a framework for interpreting treaties, ensuring they reflect the mutual intentions of the signatory parties.

By elucidating these concepts, the Supreme Court's decision underscores the importance of understanding both domestic and international tax laws to navigate complex tax liabilities effectively.

Conclusion

The Supreme Court's decision in Anson v. Revenue and Customs (2015) serves as a critical reference point in the realm of international taxation, particularly concerning double taxation relief for individuals engaged in foreign LLCs treated as partnerships. By affirming that UK tax was computed based on the same income taxed in the US, the Court aligned the interpretation of the double taxation conventions with the principles of fairness and avoidance of economic double taxation. This judgment not only clarifies the application of existing tax treaties but also sets a precedent that ensures taxpayers are not disproportionately taxed due to cross-border income allocations. As international business structures become increasingly prevalent, such judicial interpretations will be instrumental in shaping equitable tax landscapes globally.