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HMRC internal manual

Partnership Manual

Mixed member partnerships and international aspects: where are the profits earned?

Although the business of a partnership may be managed and controlled outside the UK, profits arising in the UK will be taxable on the members regardless of their residence status. Often, this will not present any particular compliance risk as the profits of the UK branch will be returned to HMRC. It is fairly common practice for international/foreign partnerships to have UK branches. For example, this is how many US law firms operate in London. Please note the guidance at PM41200 (branches of overseas partnerships), however.

Where a UK resident partner claims that all the profits of a partnership are earned outside the UK, you may need to consider what the role of the partner is and whether they contribute to the earning of partnership profits through activities conducted in the UK. If necessary, a partnership tax return can be issued to the member. If it is established that profits have been earned in the UK, non-resident members will also be assessable on those profits.

The guidance at INTM268000 onwards contains details about the ‘machinery’ provisions for issuing returns and making assessments in respect of residents trading in the UK through a permanent establishment/branch or agency, and in particular who can be the non-resident’s UK representative. Broadly, these allow assessments to be made on the UK representative of the non-resident member(s) to collect the tax payable on the non-resident(s) in cases of non-compliance from the non-resident member. The UK representative may be the partnership itself, a branch or agency of the partnership or a UK-resident member of the partnership depending on the circumstances.