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HMRC internal manual

Double Taxation Relief Manual

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HM Revenue & Customs
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Non-residents: UK income: Partnerships

Under United Kingdom domestic law a person who is not a resident of the United Kingdom and is a member of a partnership is chargeable to United Kingdom tax on his share of the partnership profits derived from the carrying on of a trade or business in the United Kingdom.

Our domestic law charge may be modified by the terms of a double taxation agreement. Under a double taxation agreement, the United Kingdom may tax the profits of an enterprise carried on by a resident of the other country only where they are attributable to a permanent establishment or fixed base of that enterprise in the United Kingdom. Guidance concerning the meaning of permanent establishment and is found at INTM266000 et seq .

Where an enterprise is carried on through a partnership difficulty may arise in deciding who is the resident who carries on the enterprise in the United Kingdom and may consequently be entitled to claim under the terms of a double taxation agreement. Some agreements deal specifically with the treatment of partnerships. In an agreement where no specific provisions are made for partnerships there are two possibilities

a) If the partnership itself is treated as a taxable person in the other country and is liable to taxation in that country on its world-wide income then the partnership should itself be regarded as a resident of the other country and any claim to relief under a double taxation agreement should be made by the partnership. A statement from the relevant overseas tax authority should be sought from the partnership in support of any claim to relief and should confirm that the partnership is treated as a taxable person in the other country and is liable to taxation in that country on its world-wide income.

b) If the partnership itself is not a taxable person in the other country and is not liable to taxation on its world-wide income then it should not be regarded as a resident of the other country. Mere assessment of partnership income in one sum in the other country would not be regarded as establishing that the partnership is a resident. If the partnership itself is not a resident of the other country, the partnership should be treated as transparent for the purpose of claims to relief under a double taxation agreement. Where a partnership is treated as transparent, claims may be made by a partner who is resident in a country with which the United Kingdom has a double taxation agreement in respect of his share of partnership income as if he had received that income direct.

Where a partnership carries on business in the United Kingdom through a permanent establishment, any claim that a share of the United Kingdom profits should be exempt from United Kingdom tax because a partner, as opposed to the partnership, does not have a fixed base or permanent establishment in the United Kingdom should be referred to Business Profits, International.