At the very end of 2022, the IRS announced two new sets of regulations related to foreign pension funds:
- Final regs addressing the gain or loss of a qualified foreign pension fund attributable to certain interests in U.S. real property, and
- Proposed regs regarding the treatment of certain entities, including qualified foreign pension funds, for purposes of a tax exemption for foreign governments under Internal Revenue Code Section 892.
Here are some further details on each:
The Final Regs
The final regs include rules for certifying that a qualified foreign pension fund isn’t subject to withholding on certain dispositions of, and distributions with respect to, specific interests in U.S. real property.
The IRS published proposed regs on this topic in 2019. These contained rules relating to the qualification for an exemption, as well as rules relating to withholding requirements, for dispositions of U.S. real property interests by foreign pension funds and their subsidiaries and distributions described in Sec. 897(h).
The final regs address some comments received regarding the proposed regs and are generally effective for dispositions of U.S. real property interests and distributions described in Sec. 897(h) occurring on or after December 29, 2022.
The Proposed Regs
The proposed regs address the determination of whether a qualified investment entity is domestically controlled, including the treatment of qualified foreign pension funds for this purpose, under Sec. 897. The regs are proposed to apply to tax years ending on or after December 28, 2022. Taxpayers may rely on the proposed regs until they’re finalized.
Subject to a special rule for entity classification elections, the regs are proposed to apply to transactions occurring on or after the date the regs are finalized. However, rules applicable for determining whether a qualified investment entity (QIE) is domestically controlled may be relevant for determining QIE ownership during periods before the date on which the regs are finalized. Specifically at issue are testing periods for transactions that occur after the regs are finalized but that include periods from before the date of finalization. The IRS may challenge positions contrary to the proposed regs before issuing final regs.
If any issue related to qualified foreign pension funds might impact your tax situation, consult the international tax professionals at Sol Schwartz & Associates. We have been serving clients who need accounting professionals with deep experience in complex, demanding situations since 1980. Our clients’ businesses and finances operate around the world and they rely on the proven capabilities of our international tax team.
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