The taxpayer (“Cayman Ltd.”) was a Cayman company which was the general partner of a Cayman LP (“Cayman LP”). Cayman Ltd. had been admitted as a limited partner of a UK limited partnership (“UK LP”), with an initial LP interest in UK LP of approximately 19%. A UK corporation (“RBS”), which was a limited partner of Cayman LP, was relevantly only entitled to a profit allocation in the event that the Cayman LP generated “superprofits” in excess of a given benchmark. Subsequently, the business of the UK LP was transferred to a UK LLP and RBS assigned its interest in Cayman LP to another UK corporation (“Fyled”). Superprofits thereafter were generated and allocated to Fyled.
Whether it was Cayman Ltd. (the taxpayer in this case) or Fyled who was liable for UK corporate income tax on the superprofits allocated to 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 adverted to the decision of Park J in Major v Brodie [1998] STC 49, finding that two individuals (Mr and Mrs Brodie) in partnership who entered into a partnership agreement with a third person, had thereby formed a partnership of three person (known as W Murdoch and Sons). She then stated (at para. 45):
[I]n Major v Brodie there was good reason to interpret the partnership agreement in that way given that each of Mr and Mrs Brodie's names did appear in the agreement establishing that second partnership, and given that the money they had borrowed had in fact been used in the trade conducted by the second partnership. But Park J was plainly considering the position for a general partnership as W Murdoch and Sons appears to have been. He was not considering the position of limited partners in a limited partnership, whose role is limited and circumscribed by statute. … 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 … . That not only distinguishes this case from Major v Brodie, but would appear to be determinative of this argument against the appellants.
A further basis for finding that Fyled was not a member of the UK LLP was that Cayman LP could not (and was not) recorded as a member of the UK LLP, nor was Fyled (para. 47):
In any event, UK LLP is a UK corporate body governed by the Limited Liability Partnership Act 2000 which imposes a number of requirements, including … the requirement that members must subscribe their name to the incorporation document … . Cayman LP was an unincorporated body under Cayman Law. It could not be a member of the UK LLP. In theory, Fyled could have been a member of the LLP, but its name and address are not stated in the LLP Deed, and nor were details of any change ever delivered to the registrar. By contrast, Cayman Ltd's details were set out in the LLP Deed in compliance with the statutory requirements; it was a member of the LLP.
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