TD 9971

Final Regulations Regarding the Exception for Interests Held by Foreign Pension Funds Under 897.

TD 9971 finalizes the regulations under 897, 1441, 1445, and 1446 which provide the rules regarding tax exemption on gain or loss of a qualified foreign pension fund attributable to certain interests in United States real property under section 897. These final regulations also include rules for certifying the exempt status of a qualified foreign pension fund to ensure it is not subject to withholding on certain dispositions of and distributions concerning interests in United States real property.

Section 897(l), which created the exemption, was added to the Internal Revenue Code by the Protecting Americans from Tax Hikes Act of 2015 (the "PATH Act") and amended by the Tax Technical Corrections Act of 2018.

The final regulations allow Qualified Holders, which includes qualified foreign pension funds (QFPF) and qualified controlled entities (QCE) of those funds, to claim an exemption from tax when their status can be properly certified.

The IRS has stated that they intend to revise Form W-8EXP, "Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding or Reporting," to permit qualified holders to certify their status and claim the exemption from withholding.

The release of these final regulations also clarifies that before the release of the revised Form W-8EXP, a modified certification of non-foreign status can be used to establish the exemption. These modifications to the claim of non-foreign status require, among other things, that the statement include language that the recipient is not treated as a foreign person because it is a withholding qualified holder, and it needs to contain a U.S. or foreign tax identification number (TIN). The IRS has indicated that this separate statement can also be utilized after the revised W-8EXP has been released.

Samples of acceptable certifications are provided in the final regulations.

TD 9971 also clarifies that distribution to a qualified holder will continue to be reported on form 1042-S and will include an exemption code designating that the payments are exempt under section 897(l).

These regulations became effective when published in the federal register on December 29, 2022.

We will provide an update once the revised draft W-8EXP is released. In the interim, please let us know if you have additional questions or feedback regarding these updates.

The complete text of TD 9971 can be found here.

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