Certain US persons may become subject to the passive foreign investment company (PFIC) regime if they own an interest in a foreign corporation that invests primarily in passive investments (or become US persons while owning such interests). Typically, foreign mutual funds are deemed PFICs, which lead to onerous tax reporting. The Treasury and IRS recently released regulations that provide guidance on determining the ownership of a PFIC and on certain reporting obligations of PFIC shareholders. \u00a0<\/p>\n\n\n\n
One helpful aspect of the\nnewly finalized PFIC regulations is that the exceptions to PFIC reporting under\nSection 1298(f) have been clarified and expanded. Specifically, no Form 8621\nmust be filed for PFIC interests that are owned through a foreign trust that is\na foreign pension fund operated principally to provide pension or retirement\nbenefits where an income tax treaty essentially provides that the earnings from\nthe pension fund are not taxable until distribution.<\/p>\n\n\n\n
Exception for PFIC Stock\nHeld Through Certain Foreign Pension Funds That Are Covered by a U.S. Income\nTax Treaty<\/p>\n\n\n\n
The final regulations\nrevise the treaty-based exception for PFIC stock held by a United States person\nthrough certain foreign pension funds under \u00a7 1.1298\u20131T(b)(3)(ii) to eliminate\nthe requirement that the foreign pension fund be treated as a foreign trust under\nsection 7701(a)(31)(B). The final rule, which is renumbered \u00a7 1.1298\u20131(c)(4),\nclarifies that a foreign pension fund (or equivalent) covered by this exception\nmay be any type of arrangement, including but not limited to, one of the\narrangements listed in \u00a7 1.1298\u20131(c)(4). The final rule also applies in the\ncase of an income tax treaty that provides the relevant benefit by election (or\nother procedure), such as under paragraph 7 of Article 18 of the U.S.-Canada\nincome tax treaty, to the extent that the election is in effect (or other\nprocedure properly satisfied).<\/p>\n\n\n\n
The relevant\nregulation is pasted below:<\/em><\/p>\n\n\n\n (4) Exception\nfor PFIC stock held through certain foreign pension funds. A shareholder who is\na member or beneficiary of, or participant in, a plan, trust, scheme, or other\narrangement that is treated as a foreign pension fund (or equivalent) under an\nincome tax treaty to which the United States is a party and that owns, directly\nor indirectly, an interest in a PFIC is not required under section 1298(f) and\nthese regulations to file Form 8621 (or successor form) with respect to the\nPFIC interest if, pursuant to the applicable income tax treaty, the income\nearned by the foreign pension fund may be taxed as the income of the\nshareholder only when and to the extent the income is paid to, or for the\nbenefit of, the shareholder.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Certain US persons may become subject to the passive foreign investment company (PFIC) regime if they own an interest in a foreign corporation that invests primarily in passive investments (or become US persons while owning such interests). Typically, foreign mutual funds are deemed PFICs, which lead to onerous tax reporting. The Treasury and IRS recently […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"1","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-4202","post","type-post","status-publish","format-standard","hentry","category-planning-for-tax-minimization"],"_links":{"self":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/4202","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/comments?post=4202"}],"version-history":[{"count":1,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/4202\/revisions"}],"predecessor-version":[{"id":4203,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/4202\/revisions\/4203"}],"wp:attachment":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/media?parent=4202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/categories?post=4202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/tags?post=4202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}