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HMRC internal manual

Partnership Manual

Mixed member partnerships and international aspects: management and control

As per the guidance at PM40400, under UK tax law, a partnership has no residence status and we look to the residence status of each member to determine how their profits will be taxed.

Nevertheless, there are situations in which you may need to consider where a partnership’s business is managed and controlled. For example, this will be determinative of whether an individual member can claim the remittance basis (see PM40420) on profits arising outside the UK. The conditions are set down by Section 857 ITTOIA 2005. The partner’s share of non-UK profits may be treated as relevant foreign income for remittance purposes if “the control and management of the trade is outside the UK”. Note that ITTOIA 2005/S847 extends the meaning of trade to “business” for the purposes of S857. Also, if a partnership is controlled and managed outside the UK, HMRC allows the partnership tax return to include only the partnership’s UK profit.

The issue of where management and control rests in a partnership case can be difficult where business activities take place both within and outside the UK. With the exception of Limited Partnerships, where only the general partner has the power of management, partnerships are controlled and managed by all the partners, , who may be UK resident or non-UK resident. You may need to examine where that management and control is exercised.

This issue was in point in the case of ‘Mark Higgins Rallying v HMRC [2011] UKFTT 340 (TC)’, which was heard before the First Tier Tribunal in April 2011. The FTT considered how to determine where control and management of a partnership’s activities take place, with the outcome determining whether one of the partners, Mr Higgins, who was UK resident but non-domiciled, should be taxed on the arising or remittance basis in respect of income arising outside the UK; the other partner, Mr Dixon, was not UK resident. In arriving at their decision, the Tribunal judges considered “the appropriate test for the location of control and management of the business of a partnership is that adopted by the courts in relation to residence of companies”. Finding as fact that the highest level of decision-making took place outside the UK, Mr Higgins’ appeal was allowed.

As such, you should look to the principles used for determining company residence when seeking to establish where a partnership is managed and controlled. There is a large body of case law on this topic. Further guidance is available at INTM120060.