Comments of the CIOT on Tax Law Rewrite Paper CC/SC(03)04, sent to the Inland Revenue on 13 August 2003. The Chartered Institute of Taxation has the following comments on this paper:
1. New section 666
This seems to work to give the right result, ie a resident partner’s taxable profit is based on worldwide profits and that of a non-UK resident on UK profits only, but we wonder whether the position needs to made slightly more explicit. Draft explanatory note 16 explains that where a partner is both resident for one tax year and non-resident for another within a single period of account, two computations are necessary. However, could not the rewritten legislation specifically say this, and perhaps also deal with the situation where Extra Statutory Concession A11 applies and the fiscal year must be split?
2. New section 667
We have had a suggestion that the meaning of “the other partner’s profit” in the definition of PP, and “the other partner’s loss” in the definition of PL, is not immediately transparent. The suggestion was made that this might be rewritten as “THAT other partner’s profit/loss” but we think this might cause confusion with “that partner” (our emphasis) in subsection (2)(a).
Instead, to provide greater clarity, we wonder if subsection (2)(b) (and similarly (3)(b)) could be rewritten along the following lines:
”(b) the share of each of the partners who do show a profit is given by the formula
FP x PP/TP
FP is the amount of the firm’s profit for the period of account;
PP is the amount determined under subsection (1) to be the particular partner’s profit; and
TP is the total of the amounts determined under subsection (1) to be those other partners’ profits.
It might then be more immediately obvious that the apportionment is made by reference only to the partners who show a profit on first allocation, and it is those figures of profits which are used to make the apportionment on a pro-rata basis.
3. After the Consultative Committee meeting on 3 June 2003 we provided details of the article in Taxation on 13 June 2002 (page 290) that highlighted the problems for firms whose apportionment of profit is different from their apportionment of loss. It would be good if the rewritten legislation could make clear how the figures should be apportioned in these circumstances. We understand that you are looking into this, and we would be happy to be consulted on any suggested wording.
4. New section 676 (Limited Liability Partnerships (LLPs))
The legislation here is very new, so changes should be minimal, but we find that something of an endless loop has been created by the phrase "if a firm that is a LLP carries on a trade" etc, in s676(1).
A UK registered LLP is not a partnership at all but a corporate body. Presumably "firm" in s676(1) takes its meaning from s665(1), where it means "persons carrying on a trade in partnership" in "this Act", which presumably includes s676. However, members of a LLP are not in partnership at all, of course, so a LLP could never be a "firm" as defined. We do not see how s676(2)(a) gets around this because "firm" is already defined in s665(1) in a way which logically excludes UK LLPs.
The current wording in ICTA 1988 S118ZA simply refers to a LLP which carries on a trade. We do not see what is wrong with that, because in law it is the LLP which trades and not the members. So we feel that s118ZA is better as it stands and the Rewrite would be easier to follow if it used the same wording.
The Chartered Institute of Taxation
13 August 2003
020 7235 9381