ATO Interpretative Decision
ATO ID 2006/332
Income Tax
Foreign Hybrid Limited Partnership: UK limited liability partnershipFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a United Kingdom (UK) limited liability partnership (UK LLP) incorporated under the UK Limited Liability Partnerships Act 2000 (UK LLP Act) a foreign hybrid limited partnership within the meaning of subsection 830-10(1) of Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A UK LLP incorporated under the UK LLP Act is not a foreign hybrid limited partnership within the meaning of subsection 830-10(1) of Division 830 of the ITAA 1997, because it is not a limited partnership as defined in subsection 995-1(1) of the ITAA 1997.
Facts
The UK LLP Act created a separate legal entity called the UK limited liability partnership (UK LLP).
The relevant law in relation to UK LLPs is the UK LLP Act and the UK LLP Regulations 2001 (the LLP Regulations); which apply parts of the UK Companies Act 1985 (Companies Act) and the UK Insolvency Act 1986 (Insolvency Act) to LLPs. The UK Company Directors Disqualification Act 1986 (Company Directors Disqualification Act) is also applied with some modification to UK LLPs, by the LLP Regulations.
The UK LLP Act describes a UK LLP as a body corporate with a legal personality separate from that of its members, which is formed by being incorporated under that Act (refer to subsection 1(2) of the UK LLP Act). Subsection 1(5) of the UK LLP Act provides that the law as it relates to partnerships does not apply to UK LLPs.
Subsection 4(1) of the UK LLP Act states that, upon the incorporation of a UK LLP, its members are the persons who subscribe their names to the incorporation document. Subsection 6(1) of the UK LLP Act provides that every member of a UK LLP is the agent of the UK LLP.
Thus, a UK LLP is a body corporate created by law, being a separate legal entity from its members; having legal capacity, powers and liabilities distinct from those of its members, as well as having perpetual succession.
A UK LLP is not a partnership and does not have partners, only members who control and manage the UK LLP. Members of a UK LLP do not have joint and several liability for the acts of other members of the UK LLP. When a UK LLP enters into a contract it binds itself and not its members.
A UK LLP is treated as body corporate for all purposes unless specifically provided by legislation. The one such treatment is for UK tax purposes (refer to sections 10 and 11 of the LLP Act) which has the effect of taxing a UK LLP as a partnership. The distinction for UK Tax purposes is achieved by specific amendments to the UK Income and Corporation Taxes Act 1988, the UK Taxation of Chargeable Gains Act 1992 and also the UK Inheritance Tax Act 1984.
Reasons for Decision
For a limited partnership to be a foreign hybrid limited partnership it must satisfy all of the requirements of section 830-10 of Division 830 of the ITAA 1997.
The term 'limited partnership' is a defined term. Subsection 995-1(1) of the ITAA 1997 provides that limited partnership means:
- (a)
- an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly, where the liability of at least one of those persons is limited .... [emphasis added]
'Company' is defined in subsection 995-1(1) of the ITAA 1997 to mean:
- (a)
- a body corporate ; or
- (b)
- any other unincorporated association or body of persons; but does not include a partnership or a *non-entity joint venture. [emphasis added]
A UK LLP is a body corporate and hence, for Australian taxation purposes, is a company. The definition of limited partnership in subsection 995-1(1) of the ITAA 1997 excludes a company. Further, a UK LLP is not 'an association of persons ... carrying on business as partners or in receipt of ordinary or statutory income jointly'. A UK LLP is a legal person which carries on business and derives income itself.
Based on the definition in subsection 995-1(1) of the ITAA 1997, a UK LLP is not a limited partnership within the meaning of subsection 830-10(1) of the ITAA 1997. It follows that a UK LLP cannot be a foreign hybrid limited partnership for the purposes of section 830-10 of Division 830 of the ITAA 1997.
Date of decision: 6 December 2006Year of income: Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
section 830-10
subsection 830-10(1)
Division 830
subsection 995-1(1)
Related Public Rulings (including Determinations)
Taxation Determination TD 2004/31
Other References:
Offshore Investment, Issue No. 122, December 2001/ January 2002 - 'Limited Liability Partnership a new legal entity'
Offshore Investment, Issue No. 131, November 2002 - 'Tax transparencies in the UK'
UK Limited Liability Partnerships Act 2000
Keywords
Body corporate
Companies
Foreign hybrids
Foreign hybrid limited partnership
Limited partnerships
Foreign hybrid limited partnerships
Partnerships
ISSN: 1445-2782
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