![]() ![]() The final PFIC regulations apply to tax years of US persons that are shareholders in certain foreign corporations prospectively, beginning on or after the date of publication of the final PFIC regulations in the Federal Register (e.g., 2021 for a calendar-year taxpayer if the regulations are published in the Federal Register by 31 December 2020). For discussion of these changes, see EY Global Tax Alert, US final and proposed regulations on passive foreign investment companies have both favorable and unfavorable implications for insurance companies, dated 15 December 2020. Further modify the rules on when stock in a second-tier US subsidiary is treated as per se activeīoth the final PFIC regulations and the 2020 proposed regulations materially change the rules for when a foreign insurance company will be treated as a PFIC.Limit the scope of the rule treating gain on the sale of an interest in certain subsidiaries as active to the extent the subsidiary owns active assets.Treat as an active asset a limited amount of working capital held in a non-interest-bearing account.Provide guidance on when a foreign corporation licensed as a bank can avoid being treated as a PFIC.The 2020 proposed regulations would notably: Modify the rules on when stock in a second-tier US subsidiary is treated as per se active.Allow foreign corporations that are only controlled foreign corporations (CFCs) because of the repeal of Section 958(b)(4) in 2017 to measure assets by fair market value for purposes of the PFIC asset test.Allow one to take into account activities of related parties when determining whether rents, royalties and certain other types of income are passive or active.Eliminate the ability to treat a less-than-25% (by value) interest in a partnership as an active asset (with exceptions).Eliminate rents and royalties from 25%-owned subsidiaries, and the associated assets, from the PFIC income and asset tests.Eliminate reliance on the Section 954(h) active financing rules when determining whether a foreign corporation carrying on a financial business is a PFIC.Clarify an ambiguity about how ownership of PFIC stock is attributed when owned through a tier of entities. ![]() In particular, the final PFIC regulations: For discussion of the 2019 proposed regulations, see EY Global Tax Alert, US proposed regulations provide guidance on passive foreign investment companies, clarify longstanding PFIC issues and contain both favorable and unfavorable provisions for taxpayers, dated 18 July 2019. The final PFIC regulations are largely consistent with the proposed PFIC regulations released on 10 July 2019 (the 2019 proposed regulations) but contain several significant changes. In final and proposed regulations released on 4 December 2020, the United States (US) Treasury Department (Treasury) and Internal Revenue Service (IRS) provide guidance on the passive foreign investment company (PFIC) rules under Internal Revenue Code 1 Sections 1291, 12 (the final PFIC regulations and the 2020 proposed regulations, respectively). US final and proposed PFIC regulations provide a mix of favorable and unfavorable provisions
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