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HMRC internal manual

Corporate Finance Manual

Loan relationships: connected parties: late interest: participation: CIS based close companies and CIS limited partnerships: meaning of limited partnership

CIS limited partnerships

This exclusion was introduced to prevent CTA09/S375 applying to loans made by particular types of limited partnership, ‘venture capital limited partnerships’, to the companies in which they also invest by way of share capital (and so are participators in them).

Such partnerships operating in the UK are mostly formed under English or Scottish law, as limited partnerships established under the Limited Partnerships Act 1907. However some partnerships are formed under foreign law and concerns have been raised that these funds may not be collective investment schemes as that term is defined by section 235 Financial Services and Markets Act 2000. This is because some foreign limited partnerships may be capable of being regarded as, or have some characteristics of, a body corporate. Paragraph 21 of the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (SI 2001/1062) (made under powers in section 235(5) FSMA) may exclude them, as it denies collective investment scheme status to a ‘body corporate other than an open-ended investment company’.

Where any such venture capital limited partnership formed under foreign law is regarded as ‘transparent’ for UK tax purposes, it will continue to be treated as a ‘limited partnership which is a collective investment scheme for the purposes of section 235 FSMA’ in FA 1996. Tax Bulletin 50, ‘Entity Classification’, includes details of limited partnerships the Revenue regards as ‘transparent’.

References to ‘the general partner of a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000’ should be interpreted as meaning the general partner of a ‘CIS limited partnership’ as defined in S376(5).

Where the general partner of such a partnership controls a company within the definition of control at CTA10/S450, by virtue of its powers as general partner to manage the affairs of the partnership on behalf of its limited partners, and where the general partner is itself a person other than a non-close company, the controlled company would remain close notwithstanding the disregard for attribution of partner rights. For the purposes of S375 and we will nevertheless regard the controlled company as a ‘CIS-based close company’.