PE boss loses double taxation case

In a controversial case that cast doubts over how the UK would interpret its double tax treaty with the US, Harbourvest boss George Anson failed to convince a UK tribunal he was taxed twice on his US-sourced profits.

Earlier this month the director of HarbourVest’s UK operations, George Anson, lost a UK tax tribunal appeal in which he argued he had suffered double taxation on income remitted from the US to the UK.

A non-domicile living in the UK, Anson is entitled to a share of the profits in HarbourVest's US business, a registered limited liability corporation in Delaware. 

Anson, who declined to comment, has the opportunity to further appeal the decision. 

The tribunal reversed a controversial earlier decision that interests in Delaware LLCs were transparent for UK tax purposes.

“Many groups who have planned their affairs on the basis that a Delaware LLC will be UK tax opaque will welcome this decision,” said Robert Gaut of law firm Fried Frank.

Gaut added that a change in the generally-accepted UK tax code treatment of LLCs may have resulted in significant restructuring of group and fund structures, and legal uncertainty as to how double tax treaties and UK group tax rules should be applied.  

George Anson

In the original decision a lower tribunal ruled Anson owned the profits as they arose under the LLC agreement, making the entity transparent and thus covered by a US-UK double tax treaty.

On appeal the higher tribunal disagreed, saying Anson would only own the company’s profits as they were earned if he directly owned an interest in the company’s underlying assets.

Profits “are an abstract notion, arrived at after a calculation. One cannot find an asset which represents them which one can own; one can only own the assets which, for the time being, reflect them”, said the tribunal.

As such, the tribunal interpreted the LLC opaque – making Anson’s remitted income dividends and thus subject to UK tax.