Partnership Vehicles Come Under Scrutiny

Many investment funds in the alternatives sector make use of partnership structures, in particular in the private equity, infrastructure and non-core real estate sectors. The tax transparency and general flexibility of such vehicles lend themselves well to the operating models and commercial terms of such funds.

The release of the Panama Papers in April 2016, however, brought to light the use of Scottish limited partnerships as components in certain tax shelter and money laundering arrangements. Since then there has been considerable interest in the UK, and in particular the Scottish press, regarding the use and misuse of such vehicles. The UK Government has conducted extensive investigations over the course of 2017 to seek to understand this phenomenon further and also to understand better the range of legitimate uses of such vehicles.

Within the UK there is a difference in the juridical nature of partnerships, with Scottish partnerships having "legal entity" status but English Partnerships constituting associations without entity status. In the funds sector a combination of such partnerships are often usefully used in layered structures to ensure that a proper separation is achieved between the separate layers and a number of classic fund formation jurisdictions have recognised the utility of these features and have introduced a similar range of partnership vehicles, with and without entity status. Aside from this distinction (and a slightly more...