The FTT held that two PEs were trading as a partnership and as such were not eligible for a deduction for the amortisation of partnership assets.
The appellants are liable to UK corporation tax through permanent establishments (PEs) in the UK. They undertook transactions to increase their holding in a Delaware-registered LLP, and argued that under the UK-US Double Taxation Convention, the transaction, when viewed from the perspective of the PE, should be regarded as an acquisition of intangible fixed assets (IFAs), and the PEs should be entitled to a fixed-rate deduction for amortisation of these IFAs. HMRC contended that the PEs carry on their trade in partnership, and that the transaction should be viewed from the perspective of the corporate partnership. Therefore, as there was only a change in ownership of the partnership and not the IFAs, no deduction for amortisation should be allowed. The First-tier Tribunal (FTT) has agreed with HMRC, dismissing the taxpayers’ appeal.
In reaching its decision, the FTT held that the US-UK Treaty principle that PEs should be treated as separate and distinct entities, did not require that the transaction be treated as a transfer of assets to each of the PEs. The trading profits of the PEs were generated in partnership, which caused the taxing provisions applicable to corporate partnerships to engage, and the profits of the PEs to be calculated at partnership level. The partners’ accounts showed an increase in the investment in the Delaware LLP, and as such investments are excluded assets for IFA purposes, no deduction for amortisation could be allowed.
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