Broadly, ‘foreign hybrid’ means entities such as foreign hybrid limited partnerships, limited liability companies in the United States of America (US LLCs) and UK Limited Liability Partnerships (UK LLPs); being entities that are treated in Australia as a company for tax purposes, but are taxed on a partnership basis in their country of formation. That is, the overseas jurisdiction taxes the members on their share of the entity’s income and the entity itself is not taxed in that jurisdiction.
Under Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997), if the conditions specified therein are met, certain foreign hybrids (such as foreign hybrid limited partnerships, US LLCs and UK LLPs) are taxed as partnerships and not as companies, for Australian income tax purposes.
Investors in these entities are treated for Australian income tax purposes as having partnership interests. There are other special rules in addition to those normally applying to partnerships.
The effect of Division 830 of the ITAA 1997 is that specified income tax provisions apply 'as if' the foreign hybrid was a (tax law) partnership. That is, Division 830 extends the list of arrangements that fall within the definition of 'partnership' in the ITAA 1997, for the purpose of securing a method of taxation in respect of the foreign hybrids that applies to other tax law partnerships.
Last modified: 10 Aug 2016QC 48217