US Passive Foreign Investment Company Reporting
The US has special rules applicable to a passive foreign investment company (PFIC). PFIC rules may be applicable to investments including foreign mutual funds, exchange traded funds, foreign real estate investment trusts (REITs) and even foreign holding companies set up as corporations. PFICs are generally subject to a punitive tax treatment under § 1291 of the Internal Revenue Code, with other tax treatments sometimes available under § 1296 to use a mark-to-market approach, or 1295 for a qualified electing fund treatment.
An understanding of these tax rules is key to mitigating adverse tax effects including the impacts of a 1291 purge and the best time to make certain elections. Unless a de minimis exception applies, a Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, may need to be filed.