BIM72145 - Partnerships: Limited Liability Partnership (LLP): international aspects
UK branches of overseas LLPs
The tax treatment of a UK branch of an overseas LLP, and the
members of such a LLP, depends on how the foreign entity is
regarded for the purposes of the UK taxation provisions. Where the
foreign LLP is regarded as a ‘body corporate’ for the
purposes of the UK Taxes Acts the profits of the UK branch will be
chargeable to CT. On the other hand if it is regarded as a
partnership then members are separately liable to tax on their
share of the branch’s profits under the existing legislation
for partnerships rather than under the LLP Act. The latter Act only
applies to UK registered LLPs.
Double taxation relief
Where an overseas tax authority regards a foreign branch of a
UK LLP as a ‘body corporate’ the UK members will be
entitled to claim tax credit relief in respect of their
proportionate share of the foreign tax paid on the overseas
branch’s profits.
Dividends
A UK LLP is not itself ‘liable to tax’ in the UK
as the LLP tax provisions identify other persons (i.e. the members)
as the persons who are to be taxed. Accordingly for the purposes of
the Double Taxation Agreements (DTAs) the LLP is not regarded as
being resident in the UK and cannot itself therefore claim relief
from foreign taxes under such agreements. As is now the case with
ordinary and limited partnerships the members must make the claim.
Assuming they are UK residents in accordance with the
provisions of the relevant DTA the members of a LLP are entitled to
relief for any withholding tax on overseas dividends. Normally a
DTA provides for withholding tax of a maximum of 15% to be deducted
and relief for that tax given. Where a partner is an individual
then no relief is due in respect of the taxes paid (the underlying
taxes) on the profits out of which the dividend is paid.
In the very narrow circumstances where the LLP is not treated
as transparent, but instead as a body corporate for tax purposes
(such as when the LLP is in liquidation or being wound up in
circumstances where transparency cannot be retained), we take the
view that the LLP can itself claim relief for foreign taxes,
including if appropriate underlying tax.
