Structure of non-U.S. investment adviser’s U.S. broker-dealer on a tax efficient basis
Tannenbaum Helpern's client, a UK investment adviser formed as a UK limited partnership, sought to set up a U.S. broker-dealer to serve its U.S. clients. If the UK client owned the U.S. brokerage business directly, the UK client would have to file a tax return in the U.S. and could expose its UK income to potential U.S. tax. If the UK client formed the U.S. broker-dealer as a U.S. corporation, the corporation (rather than the UK client) would file a U.S. tax return and pay U.S. tax on its income, but the partners of the UK partnership would not be entitled to tax credits against their UK taxes for the U.S. taxes paid by the U.S. corporation.
Tannenbaum Helpern Tax Law attorneys worked with the clients' UK tax advisers to structure the client's U.S. broker-dealer as a U.S. limited partnership which filed an election to be treated as a corporation for U.S. tax purposes. This structure allowed the U.S. entity (rather than the UK parent) to be responsible for filing U.S. tax returns and paying U.S. taxes on its income. However, since the U.S. entity was treated as a limited partnership under UK law (with flow-through tax treatment), the UK partners were entitled to receive tax credits against the UK tax they owed on their share of the UK partnership's income for the U.S. tax paid by the U.S. partnership. This structure allowed the client to minimize the worldwide taxes paid on its U.S. based brokerage business.