PwC Seeks Info Return Filing Relief for Some Foreign Pension Funds

From: Constantinos Magdalenos (US — Tax) <constantinos.a.magdalenos@pwc.com>

Date: September 9, 2019 at 2:03:11 PM EDT

To: Poms, Douglas <Douglas.Poms@treasury.gov>

Cc: Brian Russell (US — TAX) <brian.d.russell@pwc.com>, Mark Prater (US — TAX) <mark.a.prater@pwc.com>, Michael DiFronzo (US — TAX) <michael.a.difronzo@pwc.com>

Subject: Re: Comment Letter — Notice 2018-13 & Form 5471 filing obligations

Hi Doug,

We just wanted to check in on the below around potential Form 5471 relief for foreign pension fund that wholly own US blockers they use to hold ECI generating US investments. Please let us know if you have any questions or if it would be easier to schedule a follow up call to walk through in more detail.

Happy to also catch up and further discuss the comment letter PSP submitted on the proposed BEAT regulations.

Many thanks

Costa

Constantinos A Magdalenos
PwC | Director — International Tax Services
+1 (202) 674 7837

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On Thu, Aug 15, 2019 at 10:09 PM John Sasopoulos Sasopoulos (US — Tax) <john.sasopoulos@pwc.com> wrote:

Margaret, Doug:

We wanted to follow up on our recent discussion on Form 5471 filing requirements for certain foreign pension and sovereign investment funds ("SIF") as a result of the repeal of section 958(b)(4). This is in relation to the comment letter submitted on April 18, 2019 by four Canadian pension funds (CPPIB, OMERS, OTPP and PSPIB) which we have reattached below for your reference.

As discussed, US corporations (which these funds typically use to block ECI/US filing obligations arising from their US investments) that are at least 50% owned by a SIF should have a Category 5 Form 5471 filing requirement where:

• The SIF owns (directly or indirectly through a foreign entity) at least a 10% interest in a foreign corporation that is a CFC for US federal income tax purposes, and

• The CFC's owners include an unrelated co-investor that is a direct or indirect US Shareholder (as defined in IRC Sec. 958(a)) (i.e., a 10% direct or indirect owner who is a US person).

Current Exceptions to Form 5471 Filing Requirements

Section 5.02 of the IRS Notice 2018-13 waives Form 5471 filing requirements in cases where a foreign corporation is a CFC solely by means of downward attribution of its ownership to US persons and there is no direct or indirect US shareholder of the CFC. A similar exception is included in the December 2018 instructions to Form 5471 (see page 4). This exception, however, would not apply to the situation described above because, there, the CFC's owner would include a direct or indirect US Shareholder resulting in the SIFs' US corporations to having a Form 5471 filing obligation.

• The other exceptions to Form 5471 filings as included in the December 2018 instructions also should not provide relief in this case: One exception states that a US person described in Category 1, 3, 4, or 5 does not have to file Form 5471 if all of the following conditions are met:

  1. The US person does not own a direct interest in the foreign corporation;

  2. The US person is required to furnish the information requested solely because of constructive ownership (as determined under Regulations section 1.958-2, 1.6038-2(c), or 1.6046-1(i)) from another U.S. person; and

  3. The US person through which the indirect shareholder constructively owns an interest in the foreign corporation files Form 5471 to report all of the required information.

  • This exception should not apply to the scenario discussed above because constructive ownership to the SIFs' US corporations would be through the SIF/a foreign corporation and not a US person as provided for in condition 3.

• Another exception states that a Category 4 or 5 filer does not have to file Form 5471 if the shareholder:

  1. Does not own a direct or indirect interest in the foreign corporation, and

  2. Is required to file Form 5471 solely because of constructive ownership from a nonresident alien
  

  • This exception should not apply to the scenario discussed above because constructive ownership to the SIFs' US corporations would be through the SIF/foreign corporation (not a nonresident alien).

• Under a third exception, a Category 1 or 5 filer does not have to file Form 5471 if:

  1. no U.S. shareholder (including such U.S. person) owns, within the meaning of section 958(a), stock in the foreign corporation, and

  2. the foreign corporation is an SFC or CFC solely because one or more U.S. persons is considered to own the stock of the foreign corporation owned by a foreign person under section 318(a)(3).

  • This filing exception should not be applicable in our case, given that the comment letter contemplates a fact pattern where there would be a section 958(a) shareholder (i.e. the co-investor to the SIF).

Request for Relief In View of Upcoming Filing Deadline

As discussed in the comment letter, it would be greatly appreciated if Treasury/the IRS could consider providing relief to the situation described above and exempt US persons who are constructive US shareholders as a result of the repeal of section 958(b)(4) from Form 5471 filing requirements to the extent they, or any related person, is not a section 958(a) direct or indirect US Shareholder. In view of the forthcoming filing deadlines for IRS form 5471s, it would be greatly appreciated if the Treasury/IRS could consider providing the requested relief in a timely fashion as regards the 5471 filing requirements due for FY 2018.

We suggest this relief can be effected through amending the instructions to Form 5471. Alternatively, it would be helpful if Treasury and the IRS would indicate that such relief will be forthcoming, in the form of a notice (similar to the relief granted in Sec. 5.02 of Notice 2018-13).

Thanks again for taking the time to discuss and consider the above further. We would be happy to schedule a follow up call and discuss further — please let us know if you have any questions.

Respectfully,

The PwC Team

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On Thu, Apr 18, 2019 at 12:48 PM <Douglas.Poms@.treasury.gov> wrote:

Thank you, Costa. We appreciate the input.

Doug

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From: Constantinos Magdalenos (US — Tax) <constantinos.a.magdalenos@pwc.com>

Sent: Thursday, April 18, 2019 12:10 PM

To: margaret.o'connor@irscounsel.treas.gov; Poms, Douglas <Douglas.Poms@treasury.gov>

Cc: Michael DiFronzo (US — TAX) <michael.a.difronzo@pwc.com>; Aaron Junge (US — Tax) <aaron.junge@pwc.com>; John Sasopoulos (US) <john.sasopoulos@pwc.com>; Fanjoy, Kristina <kfanjoy@cppib.com>; Brown, Benita <bbrown@cppib.com>; Liz Murphy <lmurphy@oxfordproperties.com>; Hersh Joshi <Hersh_Joshi@otpp.com>; Pedro Galego <Pedro_Galego@otpp.com>; Jean-François Ratté <jfratte@investpsp.ca>; Sara Oskoui <SOskoui@investpsp.ca>; Minnie Xu <Minnie_Xu@otpp.com>

Subject: Comment Letter — Notice 2018-13 & Form 5471 filing obligations

SUBMITTED ON BEHALF OF OTPP, CPPIB, OMERS & PSP

Margaret, Doug,

We are submitting the attached comment letter with respect to applicable Form 5471 filing requirements as a result of the repeal of section 958(b)(4) on behalf of the Ontario Teachers' Pension Plan (OTPP), the Canada Pension Plan Investment Board (CPPIB), the Ontario Municipal Employees Retirement System (OMERS) and the Public Sector Pension Investment Board (PSP) (the "Pension Funds"). The Pension Funds are all Canadian public pension funds.

The comment letter is being submitted as a response to a request for comments in Section 7 of IRS Notice 2018-13.

As further discussed in the attached, US corporations that are majority owned by the Pension Funds may be subject to Form 5471 filing requirements with respect to the Pension Funds' investments in foreign corporations where co-investors in these foreign corporations include US Shareholders. This is the case even if the Pension Funds and their US subsidiaries are not direct or indirect US shareholders of the foreign corporations and therefore not subject to GILTI and/or subpart F implications (i.e., the US subsidiaries should only be constructive US Shareholders of the underlying foreign corporations).

The potential Form 5471 filing obligations create considerable administrative burdens on the Pension Funds and impose additional compliance obligations, despite the Pension Funds and their US subsidiaries not being subject to any substantive US tax implications on these foreign investments.

The Pension Funds welcomed relief from section 5471 filing obligations provided by Notice 2018-13. Notice 2018-13, however, does not extend to situations where the Pension Funds invest in foreign corporations, and a co-investor includes a direct or indirect US shareholder. Accordingly, through the attached letter, the Pension Funds request additional relief, including for Notice 2018-13 to be expanded to exempt constructive US Shareholders from Form 5471 filing requirements with respect to all CFCs in which no US person that is related to such constructive US Shareholder qualifies as a direct or indirect US Shareholder of the CFC.

We thank you in advance for considering the requests made in the comment letter. We and the Pension Funds would be happy to discuss this with you any questions you might have.

Regards,

Costa

Constantinos A Magdalenos
PwC | Director — International Tax Services
Office +1 (703) 918-2833 | Mobile +1 (202) 674 7837
PricewaterhouseCoopers LLP
1800 Tysons Boulevard, McLean VA 22102
pwc.com

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John Sasopoulos
PwC | Director
New York | +1 (646) 299 4023
PricewaterhouseCoopers LLP
pwc.com

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