That means clashes can arise, not just with the taxpayer but between tax authorities.
How then should the taxpayer treat their US entities when completing their UK tax filings?
This last question arose in litigation with HMRC that went on for some years.
In the Anson v HMRC case, the question of how to apply the UK’s tax rules to a Delaware LLC was considered by four different courts (and 11 different judges) – the First Tier Tax Tribunal, the Upper Tax Tribunal, the Court of Appeal and the Supreme Court.
The first court agreed with the taxpayer, the second court agreed with HMRC, the Court of Appeal confirmed the decision, before the Supreme Court reversed that decision and finally sided with the taxpayer.
This back-and-forth shows just how much scope there is for experienced tax practitioners to disagree on quite fundamental principles.
It takes time
The taxpayer who has complex circumstances but wants certainty can therefore face an uphill struggle.
In the UK, tax returns for an individual are normally due by January 31 after the end of the relevant tax year.
So, an individual who undertakes a transaction in June 2023 has to declare it in their tax return by January 31 2025.
HMRC then has a year to raise any questions, which takes our hypothetical taxpayer to January 2026, although HMRC has a further period to raise assessments where they have 'discovered' a tax issue that lasts (typically) for at least four years and so pushes the date to April 2028.
If HMRC do raise questions in an enquiry, there could be exchanges of correspondence that last for months or even years.
In the hopefully unlikely event of having to take a particular point to court, the process is likely to take years from that point.
In the Anson case mentioned above, for example, the Supreme Court hearings took place in 2015, but concerned a period between 1997 and 2004.
Checking with HMRC is tricky
At the same time, there is limited scope for checking with HMRC in advance.
There are some specific areas where the tax rules provide for a pre-clearance procedure – for example, in some cases when exchanging shares in one company for shares in another.
There are other circumstances where HMRC may be willing to discuss issues and provide some comfort, but generally speaking it is rare – and in many cases impossible – for taxpayers to agree a position with HMRC in advance that a taxpayer can confidently rely upon.
Looking at other countries’ tax authorities, this is not uncommon, but equally there are places where it is routine to get sign-off from tax authorities.
