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Attribution of Profits to a Permanent Establishment of a Partnership (Hybrid Entity)
Limitations of the “Separate Entity Approach”
The profit attribution to a permanent establishment (PE) in the case of a partnership often raises qualification conflicts. Questions such as whether the partnership is transparent or not or how to deal with expenses on the partners’ level in the PE income attribution have to be answered. Under German domestic law (§ 15 para 1 lit 2 dEStG), the concept of an additional balance sheet (“Ergänzungsbilanz”) is used for such an income attribution – an approach that is considered to be a treaty override. In the UK court case Bloomberg Inc. and BLP Acquisition Holdings LLC v. HMRC, the treatment of expenses related to the business of the partnership on the partners’ level was in dispute.
1. Summary of the Facts and Positions of the Parties to the Dispute
On April 16th, 2018, the United Kingdom First-tier Tribunal rendered its decision in the case of Bloomberg Inc. and BLP Acquisition Holdings LLC v. The Commissioners for Her Majesty’s Revenue and Customs. The two appellants were Bloomberg Inc. (hereinafter: BI) and Merrill Lynch L.P. Holdings Inc. (hereinafter: ML), both tax residents in the US. BI and ML carried out their business through a separate Delaware registered limited partnership,...