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HMRC internal manual

International Manual

UK residents with foreign income or gains: income arising abroad: Partnerships

The nature of the income derived by a UK resident who is a partner in a foreign partnership will depend on whether, under the foreign country’s domestic laws, the UK resident is entitled to share in the partnership profits as they arise (as is the case with a UK partnership) or only when they are distributed (similar to a dividend). INTM180010 to INTM180030 provides guidance on the factors taken into account in determining the nature of the foreign entity and provides a list of those entities where HMRC have reached a view as to how a particular foreign entity should be treated for UK tax purposes. As indicated in INTM180030, cases of doubt or difficulty should be referred to CSTD Business, Assets & International, Base Protection Policy team. The view that the UK resident partners of a partnership resident in a foreign country remain liable to UK tax on their share of partnership profits was successfully challenged in the case of Padmore v. CIR (62TC352). The position has however been restored by legislation (now ITTOIA05/S852). These provisions are deemed always to have had effect (see F2A87/S62 (2)) for all taxpayers except the successful litigant and those for whom Padmore was a test case. See alsoDT1750.

Except in the cases of Germany (DT7904) and Switzerland (DT18104), older double taxation agreements do not specifically refer to partnerships. The current policy, following Padmore v CIR, is to negotiate a provision in agreements confirming UK taxing rights over a UK 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.

DT1750 deals with the taxation of non-resident partners in a partnership which is carrying on a trade or business in the UK through a permanent establishment.