April 25, 2014

Foreign Pension Funds Potentially Exempt from Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA")

On April 10th, the White House issued the Administration’s Fiscal Year 2014 Revenue Proposals.  Contained in the infrastructure section is a proposed exemption from the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) for foreign pension funds. 

FIRPTA is a withholding tax that applies to sales proceeds arising from a disposition of a U.S. real property interest by a non-U.S. owner.  The buyer must withhold and deposit 10% of the gross proceeds paid to the non-U.S. seller unless an exemption applies.  Due to the fact that the definition of a “U.S. real property interest” is very broad, the withholding tax applies to transfers, conveyances, exchanges, sales and other dispositions of real estate, mineral rights, stock in corporations that derive 50% or more of their value from U.S. real property, and other direct and indirect interests in real property that are not readily apparent.

In order to incentivize foreign pension funds to invest in U.S. infrastructure projects, including oil and gas fields, pipelines, real estate development, and toll roads just to name a few, the Administration has proposed putting foreign pension funds on an equal footing with U.S. pension funds that are permitted to invest in certain real estate assets on a tax-exempt basis.

In order to qualify for the exemption, the foreign pension fund would have to meet certain requirements.  It would have to have been organized to provide retirement benefits to its participants or beneficiaries and be generally exempt from income tax in its home country jurisdiction.     

The proposal, if enacted, would open up certain classes of investment assets previously unavailable to foreign pension funds.  This proposal deserves to be closely watched as the President’s budget makes its way through Congress. 

© 2014 Bracewell & Giuliani LLP

About the Author


Jim Reardon's primary practice areas include private equity, mergers and acquisitions, partnership tax, financial products, and the taxation of cross-border transactions, including in-bound and out-bound investments. His clients include private equity funds investing in the energy sector, hedge funds, multinational public corporations, MLPs, financial institutions and private investors.

A significant part of Mr. Reardon's tax practice involves public utilities, oil and gas exploration and production companies, and investment partnerships...


About the Author

Elizabeth Brummett Behncke, Tax Attorney, Bracewell & Giuliani Law Firm

Elizabeth Behncke is a member of the firm's tax group. Her practice focuses on federal taxation of corporations, partnerships and joint ventures, as well as international tax planning for cross-border transactions. Ms. Behncke advises clients on the formation of business entities and structuring transactions in a tax-efficient manner.


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