On March 29, the Obama Administration issued a press release
outlining its plan to encourage private investment in
infrastructure. As part of its plan, foreign pension plans would be
exempted from U.S. tax on gain from the disposition of U.S. real
property interests, including both infrastructure and other U.S.
real estate assets.
Currently, non-U.S. persons, including foreign pension plans,
are subject to tax on the disposition of U.S. real property
interests under the Foreign Investment in Real Property Tax Act
("FIRPTA"), codified in § 897 of the U.S. Internal
Revenue Code. According to the press release, foreign investors
including pension plans often cite such tax as a hindrance to
investing in U.S. infrastructure projects. U.S. pension plans, on
the other hand, are exempt from tax on these and other gains.
Accordingly, the Administration's plan would equalize the
treatment of foreign pension plan investors with those of U.S.
pension plan investors by exempting these otherwise taxable gains
and would thereby encourage investment by foreign pension plans in
U.S. infrastructure projects.
Many foreign pension plans, including those organized in Canada,
are formed by foreign governments or serve mainly governmental
employees. Under current law, these pension plans may qualify for
exemption from tax on gains from the disposition of non-controlling
interests in U.S. corporations that hold U.S. real estate assets,
including those related to infrastructure projects. The proposal
would appear to expand this exemption to other foreign pension
plans and to other U.S. real property assets. The Administration
has not offered any other details regarding the proposed
Interestingly, the purported purpose of the Administration's
plan is to encourage investment in infrastructure projects, and the
plan contains several other proposals related to infrastructure
investment, but the FIRPTA exemption for foreign pension plans
would apply to all gains from the disposition of U.S. real property
interests, even those which are not related to infrastructure
projects. The proposal would, therefore, likely encourage
additional investment in U.S. real estate beyond infrastructure
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