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Charities investing in US private equity funds

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UK charities are increasingly encouraged to become limited partners in private equity funds targeting US acquisitions. They may be surprised to find US tax withheld on their shares of income and gains, which they cannot relieve in the UK. Rates of US withholding tax can be reduced by claiming the benefits of the US/UK double taxation treaty, and sometimes further reduced by claiming the benefit of exemptions for those UK charities that are ‘equivalent’ to US charities. While it is easy to claim treaty benefits, most UK charities must commission the opinion of a US tax lawyer to establish their equivalence. In some circumstances, the cost to a UK charity of substantiating its equivalence to a US charity is likely to be outweighed by the benefit of reductions in US withholding tax that are not available under the treaty.

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