UK citizens and businesses could face double US taxes
American President Donald Trump could double US taxes on UK citizens and businesses if HMRC sticks to its current guidance on how US limited liability companies (LLCs) are taxed, say leading audit, tax and business advisory firm, Blick Rothenberg.
John Havard, a US/UK private client consultant at the firm said: “Donald Trump has become aware of Section 891 of the US Internal Revenue Code. This gives the US President power to double the taxes the US imposes on citizens and companies from countries where the president considers Americans are being subjected to discriminatory taxes. For the UK, this would mean that British businesses who pay tax in the US, and British citizens who have taxable US investments would have to pay double their current rate of US tax.”
He added: “Since taking office, the president has promised to end the double taxation of American citizens living abroad. Subsequently, he formally instructed his administration to investigate whether taxes imposed by foreign countries on US citizens or US corporations are discriminatory under Section 891. This will have activated the various lobby groups who act on behalf of ‘overseas Americans’ to bring cases of ‘discrimination’ to his attention. HMRC’s view of US LLCs is highly likely to be highlighted.”
John said: “Viewed through a US lens, Americans in the UK who are members of LLCs are double taxed. They receive no credit for the US tax that they pay on LLC income. In the US, LLCs are popular vehicles for collective investment. Unsurprisingly, numerous American expatriates living in the UK are members of an LLC. Policy makers at both HMRC and The Treasury should be joining up the dots and seeing where this is leading.”
He added: “A solution could be crafted by HMRC and The Treasury relatively quickly within the context of the UK/US Tax Treaty. A competent authority agreement (CAA) between the two countries could specify particular identifying characteristics in a LLC which would, for purposes of the tax treaty, allow a UK member of the LLC to treat it for UK tax purposes as if it was a partnership.”
John said: “However, the initial response of The Treasury and HMRC is likely to be that the UK/US Tax Treaty permits the UK to act in this way and that the US has formally agreed to double taxation. That argument is unlikely to sway Donald Trump if he becomes focused on the LLC issue. The President is a deal maker. He is likely to view what the tax treaty has to say on this subject as being a ‘bad deal’. There is ample evidence from his first administration of how the President reacts to the existence of ‘bad deals’.”
He added: “If HMRC stick to their current guidance on LLCs, they run the risk of Donald Trump retaliating. Addressing the issue in advance would be far easier than having to deal with the consequences of UK citizens and businesses are being hit with a doubling of their US taxation.”