BCM Cayman – Court of Appeal of England and Wales confirms that a two-tier partnership structure can be legally respected as such if the upper-tier partnership is an LP

The taxpayer (“Cayman Ltd.”) was a Cayman company which was the general partner of a Cayman LP (“Cayman LP”) which, in turn, had a 19% interest in a UK LLP.

Whether it was Cayman Ltd. (a taxpayer in this case) or Fyled (a UK corporate limited partner of the Cayman LP) who was liable for UK corporate income tax on carry profits allocated to the Cayman LP turned, in part, on whether Fyled was to be considered as a member of the UK LLP.

In finding that Fyled could not be considered to be carrying on business in common with the named partners of the UK LLP and, thus, was not a member of the UK LLP, Whipple LJ stated:

Cayman LP's business was carried on by its general partner (Cayman Ltd) and … the limited partners (including Fyled) were prohibited by Cayman law from taking part in Cayman LP's business … .

Thus, the well-known statement in Lindley and Banks on Partnership, that “where a firm purports to become a partner, this will, as a matter of law, constitute each of the members of that firm as a partner in his own right,” was inapplicable because the limited partner of the upper-tier partnership was prohibited from engaging with the partners of the lower-tier partnership.

Neal Armstrong. Summaries of BCM Cayman LP & Anor v Commissioners for His Majesty's Revenue and Customs [2023] EWCA Civ 1179 under s. 102(2) and s. 248(1) - corporation.