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HMRC internal manual

International Manual

HM Revenue & Customs
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Description of double taxation agreements: Partnerships

UK policy, following Padmore v CIR, is to negotiate a provision in agreements confirming United Kingdom taxing rights over a United Kingdom resident partner’s share of partnership profits where the partnership as an entity is resident in the other country for tax purposes under its domestic law. (See INTM163130 for more background).

However, a special article is required in treaties where partnerships established in the other state count as ‘persons’ qualifying for benefits. It ensures that individual members of such a partnership who are themselves UK resident remain taxable in the UK on their share of the profits of the partnership.

UK domestic law treats partnerships as transparent and taxes individual members on their share of the partnership’s profits.

What we now seek to do is either:

  • exclude all partnerships from a treaty, by removing them from the definition of ‘person’ in, typically Article 3, of our treaties; or
  • if the other state treats partnerships as taxable entities and wishes them to be covered by the treaty, another article, typically at Article 23A of our treaties, must be included. This ensures that the UK’s right to tax UK resident members of partnerships set up under the laws of the other state is maintained.