ATO ID 2008/80: Foreign Hybrid Limited Partnership: Delaware Limited Partnership
Date of decision: 16 April 2004
Year of income: Year ended 30 June 2007 Year ended 30 June 2008
Business line: Public Groups and International

Issue
Can a limited partnership, formed in the United States, under the Delaware Revised Uniform Limited Partnership Act (Del.) (DRULPA) be 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
Yes. A limited partnership formed under the DRULPA can be a foreign hybrid limited partnership within the meaning of subsection 830-10(1) of Division 830 of the ITAA 1997 as it is a 'limited partnership' within the meaning of section 995-1 of the ITAA 1997.

Facts
Limited partnerships (LP) in Delaware are governed by the DRULPA which forms Chapter 17 of Title 6 to the Delaware Code. Section 17-1105 of the DRULPA provides that 'in any case not provided for' reference may also be made to the Delaware Revised Uniform Partnership Act (DRUPA) which forms Chapter 15 of Title 6 to the Delaware Code. An LP is formed under the DRULPA by executing a certificate of limited partnership. Under the Delaware legislation, an LP has the following features: The partners to the LP have executed a partnership agreement (LP Agreement) which includes the following terms: The LP was not formed solely for the purposes of becoming a venture capital limited partnership, a fund of funds or venture capital management partnership (VCMP).

Reasons for decision
Summary: For a limited partnership to be a foreign hybrid limited partnership, it must satisfy all of the requirements in section 830-10 of the ITAA 1997, including meeting the definition of 'limited partnership'. 'Limited partnership' is defined, as relevant, in section 995-1 of the ITAA 1997 to mean: As each limited partner's liability is limited under the LP agreement, the LP will be a limited partnership if it is 'an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly'. An LP formed under the DRULPA has features both commonly associated with a business carried on by partners as partners and with a company. In particular, while separate legal entity status is more commonly associated with companies, (for example see Rose v. Federal Commissioner of Taxation (1951) 84 CLR 118, (1951) 9 ATD 334, (1951) 5 AITR 197) this feature of itself does not necessarily lead to characterisation as a company. Rather, the question remains as to whether the business is being carried on by the relevant persons as partners (as opposed to by the separate legal entity on its own behalf) (see for example Major (Inspector of Taxes) v. Brodie & Another [1998] STC 491, at 498.) In this particular case there are a number of features which favour characterisation of the LP as a partnership. These include: The business is organised and conducted more in line with how a partnership operates than a company and the profits, as they arise, belong to the partners indicating that it is the partners carrying on the business and not the separate legal entity. Therefore, despite the fact that the partnership has separate legal status, the predominance of characteristics favours classification as a partnership. As such the LP is a 'limited partnership' within the meaning of section 995-1 of the ITAA 1997. Providing the remaining conditions in section 830-10 of the ITAA 1997 are met, the LP may therefore be a 'foreign hybrid limited partnership'.

Legislative references: Income Tax Assessment Act 1997 Division 830 section 830-10 subsection 830-10(1) subsection 995-1(1)
Case references: Rose v. Federal Commissioner of Taxation (1951) 84 CLR 118 (1951) 9 ATD 334 (1951) 5 AITR 197
Other references: Delaware Revised Uniform Limited Partnership Act (Del.) Delaware Revised Uniform Partnership Act (Del.)
Subject references: Companies Foreign hybrid limited partnership Limited partnerships