Oxfam has been making some appropriate noise over the last few days on the international tax abuses that are being hidden from view behind Scottish Limited Partnerships. As they have noted:
Scottish Limited Partnerships (SLPs) are a complex way of structuring a business. Not all of them are being used for illegitimate purposes. However, they have rapidly grown in number and we are concerned by media reports suggesting they are being explicitly promoted overseas as 'Scottish zero per cent tax companies'. We are particularly alarmed that it can be hard to know who really owns SLPs.
To summarise the law on Scottish Limited Partnerships, they are legal entities that are separate from their members that are not taxable in the UK if none of their members are UK resident. What is more, they do not have to file their accounts on pubic record in this country unless the so called general partner responsible for managing its affairs is a UK limited company. Having a general partner registered in a place like the British Virgin Islands does permit the exemption from filing accounts.
The result is that Scottish law is allowing the creation of entities that can be used for tax avoidance and evasion behind a veil of near total secrecy that are as likely to be effective for these purposes as anything available in most more widely recognised tax havens.
Whatever use these Limited Partnerships might have once had in Scottish law has now gone: for commercial purposes limited liability partnerships that are available throughout the UK have supplanted their purpose. Their remaining use, which has gown rapidly over the last few years, is then almost solely related to the secrecy and / or the opportunities for tax abuse that they provide.
The Scottish government cannot get rid of these corporate structures; they do not have the right to do so within current devolved powers and as such there is nothing the SNP government can do to prevent this abuse going on: it is down to Westminster to end it.
The time for Westminster to do so has arrived. Theresa May says she wants to end tax abuse. This is her test: a clause to require the publication of the beneficial ownership and accounts of these Scottish Limited Partnerships (and their English equivalents, which Tony Blair has used to achieve a fair degree of secrecy) could be included in the next Finance Act, if nowhere else, and another of the tax haven opportunities that the UK provides could be closed as a result.
The question is, will Theresa May walk her talk? She has the chance to prove it: there is no time like the present for her to confirm her intentions.
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Surely the easiest thing to do here would be to stop the accounts filing obligations relating to limited partnerships (generally, not just Scots LPs) being easy to avoid? As it is in relation to English LPs as well as Scots LPs, as you point out.
In that case there doesn’t appear to me to be any additional reason to get rid of Scots LPs, apart from the fact that it is conceptually nonsensical for Scots LPs to have separate legal personality and English LPs not to when both are tax transparent.
For what it’s worth, I don’t think Scots LPs are used particularly for tax avoidance. I would be interested to know what you think they would be able to achieve that an English LP could not simply by having separate legal personality. If someone wants to create a tax transparent vehicle with limited liability and separate legal personality they can easily do so offshore. They are used in private equity structures but for non-tax reasons, and the private equity tax changes over the last few years have put a stop to a lot of the previous tax practices in that industry in any event (in fact, they have been highly targeted and have changed the tax landscape quite dramatically for the sector). The problem with Scots LPs, as with all partnerships in relation to tax in the UK, is that there is scant law and HMRC are frequently confused by them.
A large-scale modernisation exercise of the law would be welcome – unfortunately, we have just had the OTR review, and the publication of this consultation:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/544520/Partnership_taxation-proposals_to_clarify_tax_treatment.pdf
And I don’t think the silly Scots / English LP distinction is adequately covered, nor is the fact that Scots LPs having both tax transparency and limited liability makes little sense.
The vast majority of new SLPs are registered from a few addresses – akin to tax haven activity
And there has been a massive increase in their use in just a few years
What else are these new SLPs used for but tax abuse in that case?
These are the structures they used to remove $1bn out of Moldova, no?
http://www.ianfraser.org/the-moldovan-connection/
Yes
My understanding is that they are used for vehicles where tax transparency is required but the partners might change frequently. This is of use in PE structures, where the Scots LP will be a partner in another partnership, because of the separate legal personality. If you used two English LPs then every time a partner changed in the top LP you would need to file a return with Companies House for the bottom LP (because without separate legal personality the partners in the top LP are treated as being partners directly in the bottom LP). Their use is therefore associated with onshore private equity structures, but not for tax reasons (beyond the tax transparency, which is of course not unique to Scots LPs).
I am not aware of their being used for anything else in particular, but that could of course be wrong. I do struggle to think of why they would be more useful than an English LP for any other reason.
I am sure a few are used for that purpose
But there is a lot of evidence they have been used for massive international fraud as well
I am sure a few are used for that purpose
But there is a lot of evidence they have been used for massive international fraud as well
I couldn’t agree more. I wrote about SLPs a couple of years ago when their use in pension schemes was being promoted quite heavily (can be found at http://weknow0.co.uk/?p=711) but was under threat from the possibility of Scottish independence. That was a way of circumventing the intention of existing legislation (in this case the maximum employer-related investment in a scheme which had quite rightly been restricted post Maxwell) but obviously there is massive scope for tax abuse here too.