Effective as of December 18, 2015, the Protecting Americans from Tax Hikes (“PATH”) Act exempts qualified foreign pension funds from the tax imposed by the Foreign Investment in Real Property Tax Act (“FIRPTA”). FIRPTA taxes non-U.S. investors on the disposition of U.S. real estate holdings. For U.S. funds with investments in real property, this development simplifies possible investment structures that target foreign pension funds, enabling qualified foreign pension funds to invest in real estate partnerships without investing through a blocker corporation being subject to FIRPTA.
A qualified foreign pension fund includes any trust, corporation, or other organization or arrangement which (i) is created or organized under the law of a country other than the United States, (ii) is established to provide retirement or pension benefits to employees, (iii) does not have a single participant or beneficiary with a right to more than five percent of its assets or income, (iv) is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in the country in which it is established or operates and (v) is entitled to preferential tax treatment, whether in the form of deductible contributions, exclusion of income earned by the fund, deferred income recognition or reduced tax rates. A qualified foreign pension fund also includes an entity all of the owners of which are qualified foreign pension funds.
We will continue to monitor this legislation and will provide updates. If you have any questions about the status or details of enacted or proposed laws and regulations, please contact:
Keith W. Kaplan, Esq.
Lawrence J. Arem. Esq.
Leila E. Vaughan, Esq.
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