Foreign partnerships may benefit from Australian Tax Office ruling

The Australian Tax Office confirmed in taxation determination 2011/25 that foreign limited partnerships formed in countries with which Australia has not entered into a tax treaty are eligible to take advantage of Article 7 of Australia’s tax treaties, discussed below, if: (1) the partners of the limited partnership are resident in a country with which Australia has entered into a tax treaty; (2) for the purposes of the tax laws of the partner’s country of residence, the limited partnership is treated as fiscally transparent and the business profits of the limited partnership are treated as the profits of the partners.

TD 2011/25 applies before and after the date of issue. Accordingly, foreign limited partnerships that have previously adopted a conservative position may wish to review their previous years to see if Article 7 of the applicable tax treaty should apply to prevent Australian tax on business profits that are not attributable to an Australian permanent establishment.

TD 2011/25 and the proposed investment manager regime (IMR) should complement each other so as to provide greater tax certainty for limited partnerships that are also collective investment vehicles for the purposes of the proposed IMR (discussed below).