UK partner of US LP with no UK business presence

Do you need to claim FTCR?

Didn't find your answer?

Or can you argue the treaty gives the US sole taxing rights (so no claim is needed as it's thereby exempt from UK tax). This bloke thinks you need to claim FTCR:

US partnership income | AccountingWEB

https://www.accountingweb.co.uk/any-answers/us-partnership-income

Replies (23)

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By Ruddles
18th Mar 2024 21:08

Given that you’ve resurrected (yet again) an ancient thread I would suggest that the past tense might have been more appropriate. Who knows what may have changed in the last 10 years.

FWIW, in matters of US taxes I would sooner rely on the opinion of DT before most other contributors here.

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By Matrix
18th Mar 2024 21:22

I thought an LLC is treated as opaque and an LP as transparent.

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Replying to Matrix:
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By Justin Bryant
19th Mar 2024 08:56

But that, in itself, does not yield an obvious and clear answer to this tricky question does it?

The point is clearly arguable. See para 51 et seq of the case below (where the facts were very much against the taxpayer, so they lost the argument there, but on better facts it seems a tenable filing position at least).
https://assets.publishing.service.gov.uk/media/64761684b32b9e0012a95ecb/...

HMRC accept the point in principle. See:

"Under the terms of a Double Taxation Agreement (DTA)
The notes to the foreign supplementary pages (SA106) explains DTAs. Essentially, if a DTA gives exclusive taxing rights to the UK, no foreign tax is payable and so there is no question of relief.
Likewise, if the DTA gives exclusive taxing rights to another country, no UK tax is payable and so no relief will be available. If a DTA applies to your circumstances in this way, you are encouraged to provide further details in the ‘any other information’ section of the SA100 (page TR7). Beyond this, you do not need to consider the guidance below."
https://www.gov.uk/government/publications/calculating-foreign-tax-credi...

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Replying to Justin Bryant:
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By Matrix
19th Mar 2024 09:43

The partner would be claiming treaty benefits, not the LP.

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Replying to Matrix:
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By Justin Bryant
19th Mar 2024 10:02

I am well aware of that and that also does not answer the question of whether a FTCR claim is necessarily needed in a SA100 for the UK partner per my above OP .

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By Tax Dragon
19th Mar 2024 10:29

As both s858 and the US UK treaty pre-date that bloke DT's comment, I'm going to assume the comment was made in the knowledge of those provisions and agree with Ruddles. Changes since have probably aimed to strengthen the taxing provisions, not to lessen them.

What advice did your client take before failing to declare the income? If they were following advice, they may have a defence against penalties - as of course you know.

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Replying to Tax Dragon:
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By Justin Bryant
19th Mar 2024 10:34

Your 2nd above paragraph is not relevant to the question.

As for your 1st above paragraph, that DT bloke was not asked my specific OP so that's not massively relevant either (just like instructions to a tax barrister must be read to fully understand the barrister's opinion).

Try answering with reference to legislation and case law (if you can). Or are you saying s858(2) trumps any such argument?

https://www.legislation.gov.uk/ukpga/2005/5/section/858#:~:text=858Resid...(2)The%20partner%20is%20liable,the%20firm%20despite%20the%20arrangements.&text=%5BF3(4)For%20the,of%20income%20of%20the%20firm.%5D

If so, perhaps as a counterargument, you can say the US partnership (i.e. the firm) is not taxable in the UK in the 1st place as it's transparent, so s858 is inapplicable.

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Replying to Justin Bryant:
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By Tax Dragon
19th Mar 2024 10:48

If the previous thread wasn't relevant, why did you use it as your starting point?

As I'm the first person in this thread to cite legislation (not even the OP could be bothered), your demand is a bit rich.

But yes, unless you can find an override for s858, the income is taxable in the UK, ergo the answer to your question is yes.

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Replying to Tax Dragon:
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By Justin Bryant
19th Mar 2024 10:51

I said not "massively" relevant. I did not say irrelevant. What about my above "transparent" counterargument?

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Replying to Justin Bryant:
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By Tax Dragon
19th Mar 2024 11:04

Run me through the argument in more detail - and beware Art 3(1)(e).

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Replying to Tax Dragon:
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By Justin Bryant
19th Mar 2024 11:16

Art 3(1)(e) does not affect my "transparent" counterargument.
https://assets.publishing.service.gov.uk/media/5a81972ce5274a2e8ab54ce7/...

Which is that s858 can only be engaged in the 1st place if the DTA relieves the US LP from UK tax in the first place, which it does not because it is transparent.

That transparent point does not affect my "sole taxing rights" argument per my OP (and as discussed in the above Hargreaves UT case).

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Replying to Justin Bryant:
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By Tax Dragon
19th Mar 2024 11:58

That's rubbish.

Without the DTA would any of the income of the LP be UK taxable? Yes, under Part 9. Why might that charge be relieved? The DTA. Is that the situation that activates s858? Yes, the very same.

(It's possibly relevant that s858 is in Pt9.)

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Replying to Tax Dragon:
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By Justin Bryant
19th Mar 2024 12:08

I would not say it's rubbish. S858(1)(b) states:

"(b) by virtue of any arrangements having effect under section 2(1) of TIOPA 2010 (“the arrangements”) any of the income of the firm is relieved from income tax in the United Kingdom."

It does not state:

"(b) by virtue of any arrangements having effect under section 2(1) of TIOPA 2010 (“the arrangements”) any of the income of the firm or its members is relieved from income tax in the United Kingdom."

So if you read that strictly it applies only to the firm's income being so relieved and not income distributed by the firm to its partners, which is income of the partners of the firm and it does not factor in potential tax transparency (and there is no deeming wording etc.). Foreign partnerships are not all necessarily transparent for UK tax (just like UK partnerships are not all necessarily transparent for UK tax).

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Replying to Justin Bryant:
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By Tax Dragon
19th Mar 2024 12:56

As I said, it may be relevant that s858 is in Pt9 - the Pt that treats firms as transparent (for income tax). Context... just as instructions to a tax barrister provide context for the barrister's opinion.

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Replying to Tax Dragon:
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By Justin Bryant
19th Mar 2024 13:16

If that's the best you can do then that (although not rubbish) is not a great argument against my above counterargument.

I would be interested in RT's views if he has the time & inclination (he seems pretty active today).

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Replying to Justin Bryant:
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By Tax Dragon
19th Mar 2024 13:24

Me too, so I'll drop out.

Struggling to see what s858 does - purposively or otherwise - if you're right.

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Replying to Tax Dragon:
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By Justin Bryant
19th Mar 2024 13:31

s858 would only be relevant for non-transparent foreign partnerships if I'm right.

Maybe that's a novel argument, but that in itself does not mean it's wrong of course.

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Replying to Justin Bryant:
By Ruddles
19th Mar 2024 17:08

Justin Bryant wrote:

s858 would only be relevant for non-transparent foreign partnerships if I'm right.


Which would suggest that you are wrong.
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Replying to Justin Bryant:
By Ruddles
19th Mar 2024 18:30

If you want to take that approach (that I do not agree with) one could just as easily say that Article 7 says:

The business profits of an enterprise of a Contracting State shall be taxable only in that State unless …

It does not say:

The business profits of a partner of an enterprise of a Contracting State shall be taxable only in that State unless …

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By Ruddles
19th Mar 2024 13:23

You asked it can be argued that the Treaty gives sole taxing rights to a UK member of a US LP. That is clearly the wrong question. One can argue anything they want to - the question should be about likelihood of success. At least 3 people here (I'd be interested in the views of DT, though) seem to think that you'd lose. So go ahead, ignore those views, and let us know how you get on.

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Replying to Ruddles:
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By Justin Bryant
19th Mar 2024 13:30

You've misread/misunderstood my question (again). God knows who's thanking your comments (a complete dummy no doubt).

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Replying to Justin Bryant:
By Ruddles
19th Mar 2024 16:30

You should perhaps read the Explanatory Note to s858, instead of attempting to apply Justinian logic to it. I'll leave it at that.

All thanks, from dummies and non-dummies alike, gratefully received.

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Replying to Ruddles:
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By Justin Bryant
19th Mar 2024 17:27

Yes; I did consider doing that (but alas I did not have time today). However, that is not determinative (especially in the face of the clear statutory words - that are not ambiguous), so is not a killer point assuming it's against me (I'll get around to reading that in due course of course) and why do you never post helpful links (i.e. to the ENs)?

Hopefully RT will have something interesting to say!

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