Omnibus Spending Bill Makes Long-Awaited Technical Corrections to Several PATH Act Provisions

by Alston & Bird
Contact

While the omnibus spending bill didn’t do much to clarify the Tax Cuts and Jobs Act, it did make some corrections to other tax laws. Our International Tax Group discusses some of those corrections for qualified foreign pension funds and the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

  • Requirements for qualified foreign pension funds
  • Changes for problematic requirements
  • Corrections to the PATH Act

On March 23, 2018, President Trump signed the Consolidated Appropriations Act of 2018 (the “Omnibus Act”), an omnibus government spending bill that includes technical corrections to previously enacted tax provisions. The Omnibus Act should have been a great opportunity for Congress to clarify ambiguities and correct glitches in the Tax Cuts and Jobs Act (TCJA). However, political differences got in the way and only one change to the TCJA, relating to the so-called “grain glitch” under Section 199A, made it into the Omnibus Act.

Although the Omnibus Act did little to clarify provisions of the TCJA, it does include technical corrections for several other tax bills, including the Protecting Americans From Tax Hikes Act of 2015 (PATH Act), signed by President Obama in December 2015. The technical corrections to the PATH Act relate to, among other things, qualified foreign pension funds (QFPFs) and the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

The concept of a QFPF was introduced into law with the PATH Act, which added Section 897(l) to the Internal Revenue Code. The PATH Act provided that QFPFs and entities that are wholly owned by a QFPF are exempted from FIRPTA and FIRPTA withholding.

For these purposes, the PATH Act explained that a QFPF is any trust, corporation, or other organization or arrangement that meets the following requirements: (1) it was created or organized under foreign law; (2) it was 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) it does not have a single participant or beneficiary with a right to more than 5% of its assets or income; (4) it 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) under the laws of the country in which it is established or operates, either contributions to such fund that would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such fund or taxed at a reduced rate, or taxation of any investment income of such fund is deferred or such income is taxed at a reduced rate.

Following the enactment of the PATH Act, there were uncertainties with some of the requirements necessary for treatment as a QFPF. The second requirement was problematic for pension funds that were not formed for employees of a specific company, including foreign governmental pension funds. These types of funds were unsure whether they were able to satisfy the requirement since participation in these funds is so broad, which makes it difficult to establish that they provide retirement or pension benefits to participants or beneficiaries that are current or former employees of one or more employers in consideration for services rendered.

In an attempt to clarify any confusion, the Omnibus Act revised the second requirement, explicitly stating that a government-established fund that provides public retirement or pension benefits may qualify as a QFPF, as well as a fund established by more than one employer to provide retirement or pension benefits to their employees, such as a multiple-employer or multiemployer plan.

In addition to uncertainties stemming from the second requirement, the fourth requirement also caused some confusion for pension funds from certain countries. In some countries, pension funds are not required to report information to the local tax authority because they instead report to another non-tax government entity. Additionally, in some countries there is no requirement for government pension funds to report to the government at all because they are considered to be a part of the government. To address these types of scenarios, the Omnibus Act revised the language of the fourth requirement to allow pension funds to meet the requirement if the relevant information is made available to tax authorities even if it is not actually provided to them.

The fifth requirement also caused confusion for pension funds from countries with no income tax system, such as the United Arab Emirates. In countries with no income taxes it was not possible to satisfy the fifth requirement since investment income would not be taxed at all, as opposed to at reduced rates. The Omnibus Act revised the language of the fifth requirement to explicitly provide that a QFPF could qualify if its income was excluded from taxation altogether.

In addition to the changes made to clarify the requirements to be qualified as a QFPF, the Omnibus Act also clarified that for purposes of FIRPTA, a QFPF is not treated as a nonresident alien individual or as a foreign corporation. This change can be interpreted in a way that indicates that a QFPF would not be considered a “foreign person” for purposes of determining whether a REIT is domestically controlled. This is very favorable for REITs and investors in REITs since gain from the sale of stock of a REIT is not taxable under FIRPTA if the REIT is domestically controlled (meaning less than 50% of the REIT’s stock was held directly or indirectly by foreign persons throughout the applicable testing period).

The Omnibus Act also makes several other technical corrections to PATH Act provisions relating to FIRPTA. One such change involves qualified collective investment vehicles (QCIVs). The Omnibus Act clarifies that the QCIV exception to FIRPTA can only be met if the QCIV is eligible for benefits under a comprehensive income tax treaty with the U.S. and the dividends article in the treaty imposes conditions on the benefits allowable in the case of dividends paid by a REIT.

Download PDF of Advisory

[View source.]

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Alston & Bird | Attorney Advertising

Written by:

Contact
more
less

Alston & Bird on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.