Entity classification case law and HMRC's interpretation
Produced in partnership with Michael McGowan
Entity classification case law and HMRC's interpretation

The following Tax practice note produced in partnership with Michael McGowan provides comprehensive and up to date legal information covering:

  • Entity classification case law and HMRC's interpretation
  • UK legislation on entity classification
  • UK case law on entity classification
  • Dreyfus v IRC
  • Ryall v The Du Bois Company
  • Memec plc v CIR
  • Anson v Revenue and Customs Commissioners
  • HMRC guidance following Anson
  • HMRC's interpretation and views on entity classification

Entity classification case law and HMRC's interpretation

It is necessary to characterise overseas entities for UK tax purposes, as this will determine how they (and their members and potentially other persons connected with them) are taxed. Broadly speaking, an entity may be:

  1. transparent—which means, that it is treated like a partnership or certain types of trust for UK tax purposes (hence not a taxable person in its own right, at least from a direct tax perspective) and its profits are typically taxed on its UK-resident members as they arise and whether or not they are distributed, or

  2. opaque—which means, broadly, that it is treated like a company for UK tax purposes (hence a taxable person in its own right) and its profits are typically not taxed in the UK until distributed to its UK-resident members or where anti-avoidance rules attribute its undistributed profits to another person (eg under controlled foreign company rules, for which see: CFC rules—overview)

It is also necessary to characterise distributions received from an opaque overseas entity (as either income or capital) as this will determine how they are taxed in the hands of a UK recipient. Not all distributions from an opaque overseas entity will be taxable as dividends. For further details, see Practice Note: UK tax implications of overseas entity classification and distributions from overseas entities.

If an entity is treated as

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