As explained in detail in an earlier article, the government is consulting on options to address the high effective tax rate suffered by UK-resident members of reverse hybrid entities, including the United States (US) limited liability company (LLC). The government’s preferred solution is to allow UK-resident individual members in specific eligible reverse hybrids to treat their holding as being transparent for the purposes of income tax and capital gains tax (CGT).

In its response to the consultation (ICAEW Representation 47/26), ICAEW has expressed support for reform that aligns the UK treatment of US LLCs and other reverse hybrids with their treatment in the jurisdiction where they are established, provided the regime is:  

• Clear and certain in its application. Clear rules and guidance will be needed on how income and gains of foreign entities should be calculated and reported in the UK, including the calculation of tax credits.
• Tax-neutral on entry and exit. Transitional provisions should be clear that entry into, or exit from tax-transparent treatment does not constitute a cessation of a trade for income tax or a disposal for CGT purposes. The rules should also prevent underlying profits, income and gains that have already been taxed in the UK from being taxed again.
• Subject to safeguards and supported by practical safe harbours. For example, properly-targeted safeguards may be required to ensure that minority members are not obliged to obtain information beyond that which is reasonably available to them. 

ICAEW has also encouraged the government to review other barriers that deter investors from coming to the UK, such as the lack of an investors visa, and to reduce the administrative burden of the foreign income and gains (FIG) regime.