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PATH Amendment to FIRPTA Affecting Non-US Pension Plan Investments in US Real Property

Section 323 of the new Protecting Americans from Tax Hikes Act (“PATH”) contains an exception to the Foreign Investment in Real Property Tax Act (“FIRPTA”) that eliminates the withholding tax with regard to US Real Property Interests (“USRPI”) held by foreign retirement or pension funds. The provision (Section 323 of PATH) applies to dispositions and distributions of USRPI after the date of enactment, December 18, 2015, the date President Obama signed PATH into law.

As a result of the new provision, FIRPTA no longer applies to any USRPI held directly (or indirectly through one or more partnerships), or to any distribution received from a real estate investment trust by

  1. a qualified foreign pension fund, or
  2. any entity with all of the interests held by a qualified foreign pension fund.

The term ‘qualified foreign pension fund’ means any trust, corporation, or other organization or arrangement

  1. which is created or organized under the laws of a country other than the United States,
  2. which is established to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers in consideration for services rendered,
  3. which does not have a single participant or beneficiary with a right to more than five percent of its assets or income,
  4. which 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
  5. with respect to which, under the laws of the country in which it is established or operates (i) contributions to such trust, corporation, organization, or arrangement which would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or taxed at a reduced rate, or (ii) taxation of any investment income of such trust, corporation, organization or arrangement is deferred or such income is taxed at a reduced rate.

As time passes, the IRS will likely issue tax regulations with regard to the above but as of now, the material is limited to Section 323 of PATH, summarized above.

For more information on the topic discussed, contact Michael G. Tannenbaum at tannenbaum@thsh.com.

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