LLP with no trade in UK own another LLP.

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Hi all.

There are different opinions on the tax treatment regarding a UK LLP with non resident members and no trade in UK holding another UK LLP always without trading in UK.

The first tax advisor states "If one LLP owns another LLP, then second LLP and subsequently members of that LLP will be taxed in the UK, as it will be considered a UK source of income"

The second tax advisor states: "I'd take the view that the LLP's would benefit from pass through taxation and there would only be a UK source if there was underlying UK investment or trading income etc. If for instance the first LLP received foreign income, my view is that it is likely to be classed as such in the subsequent LLP. However, having said this, this is just an initial view and it would be advisable to look at the legislation covering UK source income and the LLP Act to assess the status."

What is your point of view regarding this case ?

Thank you in advance

Mark

Replies (10)

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Stepurhan
By stepurhan
25th Apr 2017 16:58

If they aren't doing anything in the UK, what is the reason for having not one, but two UK LLPs?

I suspect this is one of those cases where the devil is in the detail. If, as seems to be the case, there is no income to account for, then the tax status seems irrelevant.

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Replying to stepurhan:
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By marc_london
25th Apr 2017 17:49

No devil in this case :)
I try to be much clear.

At the moment I have one LLP with two software products: one for the France market and the other one for the Spain market. All software are developed outside UK.

I have now received an offer to sell 51% of my Spanish software with the option to buy the remain 49% in the future.

I would like to create the second LLP owned by the first one, transfer into it my Spanish software (intellectual rights etc) and then sell the 51% of this second LLP interests to the prospective buyer.

I'm not sure if the profits that the first LLP will receive from the second LLP business (49% and non UK source) will be taxed in UK or not when received.

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Replying to marc_london:
Stepurhan
By stepurhan
26th Apr 2017 09:06

marc_london wrote:

No devil in this case :)
I try to be much clear.

At the moment I have one LLP with two software products: one for the France market and the other one for the Spain market. All software are developed outside UK.

I have now received an offer to sell 51% of my Spanish software with the option to buy the remain 49% in the future.

I would like to create the second LLP owned by the first one, transfer into it my Spanish software (intellectual rights etc) and then sell the 51% of this second LLP interests to the prospective buyer.

I'm not sure if the profits that the first LLP will receive from the second LLP business (49% and non UK source) will be taxed in UK or not when received.

So you've got a French market and a Spanish market, and nothing is being developed in the UK.

So I'll ask again, why two UK LLPs? Why is anything being run through UK LLPs (and why two of them) when nothing about the arrangements relates to the UK otherwise.

Unless you can explain this apparent anomaly, no-one is going to be able to help you.

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Replying to stepurhan:
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By marc_london
26th Apr 2017 12:21

It's for tax purpose. This structure permits to differ or reduce to nil the tax payment in the country of residence of the LLP members. The software development is outsourced through India based programmers.

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Replying to marc_london:
Stepurhan
By stepurhan
26th Apr 2017 12:26

marc_london wrote:

It's for tax purpose. This structure permit to differ o reduce to nil the tax payment in the country of residence of the LLP members.

Seek specialist advice, possibly from whoever advised you the structure would eliminate the tax bill in the country of residence.

If the structure permits the tax to be reduced to nil in the actual country of residence, there must be a reason for that. It is entirely possible that it is because the structure renders the income a UK source, and hence taxable here. Alternatively, you may simply have been misinformed about it eliminating the tax liability in the first place.

I cannot believe that simply setting an LLP up here means there is no liability to tax anywhere.

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Replying to stepurhan:
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By marc_london
26th Apr 2017 12:55

>I cannot believe that simply setting an LLP up here means there is no liability to tax anywhere.

Hi stepurhan, it's just the rule since 2001.
http://www.shlandes.com/sectors/llp.html

Taxation

LLPs are ‘tax transparent’ which means that each member, not the partnership, will be assessed to tax on their share of the LLP’s income or gains. Any non-UK source profits or gains made by an LLP will not be subject to UK tax unless the members are UK resident individuals or companies.

There are no restrictions on the residence or nationality of the members of an LLP and therefore, if the members of the LLP are non-resident and the income of the LLP is non-UK source, the LLP will not be subject to UK taxation. It is therefore possible to have an LLP set up in such a way as to not be liable to any UK taxation.

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Replying to marc_london:
Stepurhan
By stepurhan
26th Apr 2017 14:10

Thank you for that condescending response. I am actually well aware that LLPs are tax transparent. (Your link only addresses the UK tax position, so actually doesn't answer the question I asked, which is why you think there is no tax anywhere)

One of two things must be happening.

- The income is still treated as income in the country of origin, and taxable as such. (so your stated reason for setting up UK LLPs is based on a false premise)
- The income is somehow converted to UK income (meaning it was no longer taxable in the country of origin), which would make it taxable under UK law regardless of the original source.

All tax transparency means is the LLP itself is not taxed as a separate entity. The tax consequences to the partners of the income they are receiving are not magically changed by the presence of the LLP alone.

You seem to be treating tax transparency as somehow eliminating the tax in the home country AND not creating a liability in the UK. I really don't understand what you are basing that on.

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Replying to stepurhan:
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By marc_london
26th Apr 2017 14:27

It is not the tax transparency to eliminate the tax in the home country but the fact the LLP members are corporate based in jurisditions with 0% corporate tax rate.

Furthermore please consider an LLP is tax transparent only for HMRC. It isn't transparent for the other country inland revenue that will apply any tax only on the "dividend" distribution from the LLP to the members (different from the HMRC that immediately attribute the profits to the members).

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By Matrix
25th Apr 2017 22:17

If the partners are non UK resident then you would need to look at the taxation for the partners. And get some proper advice.

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By Paul D Utherone
26th Apr 2017 14:24

If you look at the recent HMRC Partnership consultation - https://www.gov.uk/government/consultations/partnership-taxation-proposa... - I would say that the second is probably correct and you would need to look through to the status of the underlying partners.

Certainly the proposals are that partnerships would need to report computations & allocations on all possible bases for the underlying partners so that the second partnership has a means of allocating to its partners, be they UK R or NR and individual or corporate

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