The Foreign Investment in Real Property Tax Act of 1980, as amended (FIRPTA), imposes tax on gain realized on disposition by nonresident alien individuals or foreign corporations (non-U.S. persons) of a U.S. real property interests (USRPI) by treating such gain as effectively connected with the conduct of a U.S. trade or business by such non-U.S. persons (effectively connected income, or ECI). The FIRPTA tax is enforced by requiring the purchaser (or other transferees) of a USRPI from a foreign person to withhold an applicable percentage (generally 15%) of the gross proceeds and pay over to the Internal Revenue Service (IRS). On June 7, 2019, the IRS and the Treasury Department issued proposed regulations (the Proposed Regulations) on Section 897(l) of the Internal Revenue Code (the Code) that provides an exemption from the FIRPTA tax for qualified foreign pension funds (QFPF) on gains or losses attributable to dispositions of USRPI. The Proposed Regulations provide rules for determining the qualification for the exemption under Section 897(l), including certain organizational structures that are eligible for such exemption. The Proposed Regulations also clarify certification and documentation requirements with respect to withholding obligations under Sections 1445 and 1446. In addition, the Proposed Regulations provide certain anti-avoidance rules by imposing conditions on the sale of certain investment vehicles wholly owned by a QFPF.
Click here to read the full GT Alert.