ATO ID 2006/331: Foreign Hybrid Company: UK limited liability partnership
Date of decision: 6 December 2006
Year of income: Year ended 30 June 2007
Business line: Public Groups and International

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 company within the meaning of section 830-15 of Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
During income years ending on 30 June 2006 or earlier, a UK LLP incorporated under the UK LLP Act was not a foreign hybrid company within the meaning of section 830-15 of Division 830 of the ITAA 1997, because no regulations with regard to UK LLPs were in force. Accordingly, the requirements in paragraph 830-15(3)(c) of Division 830 of the ITAA 1997 were not met. During income years beginning on or after 1 July 2006, a UK LLP incorporated under the UK LLP Act is a foreign hybrid company within the meaning of section 830-15 of Division 830 of the ITAA 1997.

Facts
The UK LLP Act created a separate legal entity called the UK limited liability partnership (UK LLP). Since 6 April 2001, it has been possible to incorporate such a UK LLP in England, Scotland and Wales. The relevant law in relation to UK LLPs is the UK LLP Act and the UK Limited Liability Partnership 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 UK 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 a 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
Summary: A UK LLP is a body corporate and hence, a company for Australian taxation purposes. To be a foreign hybrid company within the meaning of section 830-15 of Division 830 of the ITAA 1997, a company is required to meet, at all times during the year it was in existence, the requirements of subsection 830-15(2) of the ITAA 1997 if it was formed in the USA, or subsection 830-15(3) of the ITAA 1997 if it was formed in any foreign country (which may include the USA). In the case of a UK LLP subsection 830-15(2) of the ITAA 1997 is inapplicable. However, as England, Scotland and Wales are all foreign countries, the first condition (that is, in paragraph 830-15(3)(a) of the ITAA 1997) is satisfied and so subsection 830-15(3) of the ITAA 1997 may potentially apply. A UK LLP will satisfy the second condition in subsection 830-15(3) of the ITAA 1997 for being a foreign hybrid company if, for the purposes of the laws of England, Scotland and Wales relating to foreign tax imposed by those countries, the UK LLP is treated as a partnership (refer to paragraph 830-15(3)(b) of the ITAA 1997). As noted above, a UK LLP is treated as a partnership rather than a corporate entity, for UK income tax purposes. Thus, the provisions of paragraph 830-15(3)(b) are satisfied. A UK LLP will satisfy the third condition contained in subsection 830-15(3) of the ITAA 1997 for being a foreign hybrid company, if regulations are in force setting out requirements to be satisfied by a company and the UK LLP satisfies those requirements (refer to paragraph 830-15(3)(c) of the ITAA 1997). However subsection 830-15(4) of the ITAA 1997 does not allow regulations for this purpose to apply for any income year before the one in which the regulations are made. Regulation 830-15.01 of the Income Tax Assessment Regulations 1997 was introduced with effect from 27 June 2007 and therefore applies to income years beginning on or after 1 July 2006. Prior to this date no regulations were in force. Regulation 830-15.01 provides that, for the purposes of paragraph 830-15(3)(c) of the ITAA 1997, it is a requirement for a company in relation to an income year that the company be a limited liability partnership for the purposes of the UK LLP Act. It follows that for:

Legislative references: Income Tax Assessment Act 1997 section 830-15 subsection 830-15(2) subsection 830-15(3) paragraph 830-15(3)(a) paragraph 830-15(3)(b) paragraph 830-15(3)(c) subsection 830-15(4) Division 830 subsection 995-1(1)
Related public rulings and determinations: Taxation Determination TD 2004/31
Related ATO interpretative decisions: ATO ID 2006/332
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' Income Tax Assessment Regulations 1997, Regulation 830-15.01
Subject references: Body corporate Companies Foreign hybrid company Legal person Limited partnerships Foreign limited partnership Partnerships