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            Land Appreciation Tax Liability of a Registered Partnership (January 5th, 2005)

            1.Factual Background

            1.1.A partnership was organized in the 1960s as a registered partnership ("Partnership”).


            1.2.The partnership agreement allocated the interests in the Partnership to "A” ("Father”) (50%) and his children "B” and "C” (25% each, "Children”). A few years later, "A” gifted his interest to the Children who remained equal partners.

            1.3.During the 1970s, "A” passed away and a few years later, "B” died. After "B”’s demise, fearing that in the absence of two partners the Partnership would cease to exist, the widow of "B” and his eldest sun ("D”) were each granted a 25% interest in the Partnership. A probate decree was subsequently granted but "B”’s holdings in the Partnership were not dealt within its framework.

            1.4.The interests were not registered with the Partnership Registrar. The profits of the Partnership were not distributed in accordance with the interests of the partners but rather on the basis of the respective efforts of the partners.

            1.5.The Partnership’s assets consist solely of real-estate. One of its properties ("Property”) was acquired upon its organization and was so registered in the land registry.



            2.1.Is the Partnership regarded for land tax purposes as the owner of the Property so that it will be liable for tax at the reduced rates applicable to real estate acquired during the 1960s; or is the Partnership transparent so that upon the sale of the Property each partner will be deemed to have sold a ratable part of it?

            2.2.Is the distribution of the proceeds from the sale of the Property liable to additional tax in the hands of the partners?

            2.3.What is the recommended tax structure for disposing of the Property?



            3.1.The fact that the Land Taxation Law, 1963 regards a registered partnership as a "Real Estate Association” leads to the conclusion that such partnership is liable for the tax and therefore entitled to the favorable tax rates. Any inference to the contrary from other provisions of the statute cannot bear on this plain construction.

            3.2.The distribution of the proceeds of the sale of the Property is tax free based on the provisions of section 63 of the Income tax Ordinance which deems the consideration for income tax purposes to have been derived ratably by each of the partners and thus no taxable distribution is deemed to occur.

            3.3.The opinion recommended a tax structure for the sale of the Property by the Partnership, which will give rise to favorable tax consequences even in case the Partnership will be considered as a flow-through entity for land tax purposes.


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