In a recent decision, concerning claims for group loss relief by Irish subsidiary companies of a Delaware LLC, the Irish Tax Appeals Commission (TAC) found that (i) the LLC parent was a "company" and (ii) adopting a purposive interpretation, the LLC should be treated as a US tax resident for the purposes of the Ireland/US double tax treaty. The Irish Revenue Commissioners (Revenue) are appealing the latter aspect of the decision.
It was accepted by the Revenue that if the LLC was a body corporate and a resident of the US that the non-discrimination analysis applied in the UK FCE Bank case would be followed and that the Irish group relief would be allowed.
Ireland does not have statutory tax rules for foreign entity classification. The approach in the UK Memec case is followed when considering the treatment of a foreign entity. That approach involves, firstly, determining the foreign law characteristics of the entity and, secondly, determining whether an entity having those characteristics would be akin to a body corporate under Irish law.
The Revenue argued that the LLC was not a body corporate, in particular, on the basis of expert evidence from the US that an LLC does not enjoy perpetual succession. The taxpayer countered with its own expert evidence that Delaware LLCs do indeed have perpetual succession. The TAC decided for the taxpayer.
Had the TAC found in favour of the Revenue on this point, Irish taxpayers could have been faced with practical uncertainties concerning the treatment of LLCs, similar to those that arose in the UK in the immediate aftermath of the Anson case. While the Revenue is appealing the TAC decision, it is not appealing the determination that the LLC is a body corporate. This will be of comfort to taxpayers who rely on the characterisation of a Delaware LLC as being a body corporate for various Irish tax purposes.
The Revenue further contended that the Delaware LLC was not a resident of the US for the purposes of the Ireland/US double tax treaty. This was because it was fiscally transparent in the US and not subject to a tax in the US, the equivalent of Irish corporation tax.
However, applying a purposive approach to the interpretation of the Ireland/US treaty, the TAC held that as all of the LLC's income was fully taxed to federal income tax in the US at the member level, it was liable to tax in the US and therefore a resident of the US for the purposes of the treaty. In arriving at its conclusion the TAC was influenced by the decision of the Canadian Tax Court in TD Securities (USA) LLC v Her Majesty the Queen.
The appeal of the TAC determination to the Irish High Court is focussed on the tax treaty interpretation point. It will be of interest how the Irish courts will view the matter. As there are few Irish court decisions concerning tax treaty interpretation any final Irish court decision on tax treaty interpretation is likely to have enduring impact.