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
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.