ATO ID 2006/334: Classification of a United Kingdom limited partnership for Australian income tax purposes
Date of decision: 25 October 2006
Year of income: Year ended 30 June 2007
Business line: International Centre of Expertise

Issue
Is a United Kingdom limited partnership (UKLP) formed under the United Kingdom Limited Partnerships Act 1907 a foreign hybrid limited partnership under Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. A United Kingdom limited partnership formed under the United Kingdom Limited Partnerships Act 1907 is a foreign hybrid limited partnership under Division 830 of the ITAA 1997.

Facts
A partnership (UKLP) is formed under the United Kingdom Limited Partnerships Act 1907 and governed by the Partnership Act 1890. It is subject to the laws and regulations of the United Kingdom. The UKLP is a resident of the United Kingdom. United Kingdom imposes tax on the partners and not on the UKLP. The UKLP is a limited partnership as defined in section 995-1 of the ITAA 1997. No other foreign country taxes the UKLP as a resident entity. The UKLP is a controlled foreign company (CFC) in relation to an Australian taxpayer and the Australian taxpayer is an attributable taxpayer with an attributable percentage of greater than nil in relation to the CFC.

Reasons for decision
Summary: Subsection 830-10(1) of the ITAA 1997 provides that a limited partnership is a foreign hybrid limited partnership in relation to an income year if: In the present case, the UKLP is a limited partnership formed in the United Kingdom and so satisfies paragraph 830-10(1)(a) of the ITAA 1997. Paragraph 830-10(1)(b) of the ITAA 1997 is satisfied because the United Kingdom taxes the profits of the limited partnership on the partners and not the limited partnership. The Explanatory Memorandum to Taxation Laws Amendment Act (No. 1) 2004, which inserted Division 830 of the ITAA 1997, states that paragraph 830-10(1)(c) of the ITAA 1997: requires that if there is another foreign country (apart from the country of formation) which taxes the limited partnership as a resident entity, it will not qualify as a foreign hybrid. No other foreign country taxes the limited partnership as a resident entity so paragraph 830-10(1)(c) of the ITAA 1997 is satisfied. Paragraph 830-10(1)(d) of the ITAA 1997 is satisfied because the limited partnership is a resident of the United Kingdom and is not an Australian resident at any time during the income year. Paragraph 830-10(1)(e) of the ITAA 1997 is satisfied because, disregarding section 94D(5) of the Income Tax Assessment Act 1936 , the limited partnership is a CFC in relation to an Australian taxpayer and the Australian taxpayer is an attributable taxpayer with an attributable percentage of greater than nil in relation to the CFC. As a result of satisfying all the requirements of subsection 830-10(1) of the ITAA 1997, the UKLP will be a 'foreign hybrid limited partnership' for the purposes of section 830-10 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1936 section 94D
Related ATO interpretative decisions: ATO ID 2006/149
Other references: The Limited Partnership Act 1907 (United Kingdom) The Partnership Act 1890 (United Kingdom) Taxation Laws Amendment Act (No. 1) 2004
Subject references: United Kingdom Controlled foreign companies Foreign hybrid limited partnership Foreign hybrids International tax Limited partnerships