Canada: Anti-Deferral And Anti-Tax Avoidance

Sovereign Wealth Funds At A Disadvantage Compared To U.S. Tax-Exempts

Sovereign wealth funds (SWFs) are governmental investment vehicles, often funded with foreign exchange assets, and managed separately from the official reserves of a monetary authority.1 They have recently attracted the attention of Congress and the imagination of the public press.2 This attraction may be the result of several factors, including an increase in commodity prices, growth in the size and public nature of SWF investments, and the recent U.S. credit crunch. In any event, Senators Baucus and Grassley of the Committee on Finance have requested the Joint Committee on Taxation "[to] describe and [to] analyze the history, current rules, and policy underpinnings of the U.S. tax rules applicable to U.S. investment by foreign governments, including investments made by Sovereign Wealth Funds."3 They indicated that "we ought to ... have a clear understanding of the U.S. tax rules that apply to these investments, how those rules compare to those that apply to non-governmental foreign investors, and how other countries tax these investments."4

Given the economic and political climate confronting SWFs today, it may be time for the United States to consider harmonizing the "foreign governmental exemption" found in Code Sec. 8925 and the U.S. treatment of tax-exempts under the unrelated business income tax (UBIT).6

Foreign Governmental Exemption In Code Sec. 892

The governmental exemption, based upon comity and concepts of sovereign immunity, first appeared in U.S. tax legislation in 1917, and covered only certain investment income. Code Sec. 892(a)(1) still contains only a limited exemption for certain investment income earned by foreign governments. Code Sec. 892 was significantly narrowed in by the Tax Reform Act of 1986 ("TRA"); temporary regulations published in 1988,7 with minor exceptions, remain effective today.8

What Is A Foreign Government?

For purposes of the Code Sec. 892 exemption, a "foreign government" is defined in Temporary Reg. §1.892-2T by exclusion, and includes only "integral parts" and "controlled entities" of a "foreign sovereign." 9 An "integral part" of a foreign sovereign is any person or bodies of persons, organization, agency, bureau, fund, instrumentality or other body, however designated, that constitutes a governing authority of a foreign country.10 An individual sovereign, official or administrator acting in his or her private or personal capacity, determined under a facts and circumstances analysis, is not an integral part of a foreign sovereign.11

"Controlled entity" is defined as an entity that is separate in form from a foreign sovereign or otherwise constitutes a separate juridical entity, provided that it meets four additional criteria: (1) it is wholly owned and controlled by a foreign sovereign (directly or indirectly through one or more other controlled entities); (2) it is organized under the laws of the foreign sovereign by which it is owned; (3) its net earnings are credited to its own account or to other accounts of the foreign sovereign, with no part of its earnings inuring to the benefit of any private person); and (4) its assets vest in the foreign sovereign upon dissolution.12 A controlled entity does not include partnerships or any other entity owned and controlled by more than one foreign sovereign.

A separately organized pension trust also qualifies as a controlled entity if it satisfies the following conditions: (1) the trust is established exclusively for the benefit of employees or former employees of a foreign government or nongovernmental employees or former employees that perform or performed governmental or social services; (2) the funds comprising the trust are managed by trustees who are employees of, or persons appointed by, the foreign government; (3) the trust forming a part of the pension plan provides for retirement, disability or death benefits in consideration for prior services rendered; and (4) income of the trust satisfies the obligations of the foreign government to participants under the plan, rather than inuring to the benefit of a private person.13

What Income Is Exempt?

Generally. The Code Sec. 892 exemption covers only enumerated items, including income from (1) investments in stocks, bonds and other securities, (2) financial instruments held in the execution of governmental financial or monetary policy, and (3) bank deposits.14 Income derived from any other sources is not exempt.15

The term "other securities" includes any "evidence of indebtedness," thereby extending the exemption to all interest income, possibly excepting interest on open account indebtedness not evidenced in writing. 16 Income from a financial instrument is exempt under this rule only if implementation of governmental financial or monetary policy is the primary purpose for holding the instrument.17 The term "financial instruments" includes forward, futures and option contracts in any currency and currency swap agreements, but not currency itself unless it is held by a foreign central bank of issue.18 The exemption also covers gains on sales of stocks, bonds or other securities, and income under agreements to loan securities to brokers for use in short sales, but explicitly does not cover gain from the sale of partnership or trust interests.19 Gains from the disposition of an interest in a controlled commercial entity (CCE), described below, are not exempt, nor are any income received by or from a CCE.

Exclusion For Commercial Activities. Most importantly, Code Sec. 892 excludes income from commercial activities conducted anywhere in the world. Unlike the approach in the pre-TRA regulations, the temporary Treasury regulations do not use the trade or business standard of Code Sec. 864(b) for determining commercial activity. Rather, "commercial activity" includes any activity, unless otherwise excepted, "which [is] ordinarily conducted by the taxpayer or by other persons with a view towards the current or future production of income or gain."20 The temporary treasury regulations specify several activities that do not constitute commercial activities: investments in stocks, bonds and other securities, regardless of the volume of trading (unless undertaken as a dealer); commodities trading (regardless of whether such activities constitute a trade or business for purposes of Code Sec. 864(b)); loans (unless made by a banking, financing or similar business); investments in financial instruments held in the execution of governmental financial or monetary policy; holding net leases on real property (or land that is not producing income); and holding bank deposits. Similarly, trading for a taxpayer's own account is not a commercial activity, although investments made by a banking, financial or similar business are considered to be commercial activities, even if the income would not be effectively connected to the business.21

No direct guidance exists as to the deductions that are available to reduce gross income from a commercial activity.

Controlled Commercial Entities (CCEs). As noted above, income received by or from a CCE is not exempt from tax under Code Sec. 892. The term "controlled commercial entity" is defined in the Code to mean any entity engaged in commercial activities (whether inside or outside the United States) if the foreign government either (1) holds (directly or indirectly) any interest in such entity which, by value or voting interest, is fifty percent or more of the total of such interests in such entity; or (2) holds (directly or indirectly) any other interest in such entity which provides the foreign government with "effective control" of such entity.22

In an unfortunate use of terminology, the threshold for "control" of a CCE under the Code can be much less than needed to be an exempt "controlled entity" under the temporary regulations.

Under the Code, an entity engaged in commercial activities will be treated as a CCE if a foreign government also holds sufficient interests in the entity, even less than 50 percent of the stock, to give it "effective control" over the entity. The temporary treasury regulations use the expanded standard of "effective practical control" (emphasis added) instead, and provide that a foreign government can have such control even where the foreign government holds only "a minority interest which is sufficiently large to achieve effective control, or through creditor, contractual or regulatory relationships which, together with ownership interests held by the foreign government, achieve effective control."23

Temporary Reg. §1.892-5T(d)(2) requires tracing nonexempt income received from a CCE. For example, dividends received by a controlled entity (non-CCE) parent from a subsidiary CCE are not exempt in the hands of the parent; but the mere receipt of the dividend does not taint the parent as being engaged in a commercial entity. Yet, the (non-exempt) dividend continues to be traced further upstream. In particular, dividends paid by the parent in this example to a grandparent controlled entity (non-CCE) (or, to the ultimate foreign sovereign) are also not considered exempt under Code Sec. 892, because they are considered as having been paid traced to the CCE. As suggested in the preceding paragraph, commercial activities of a subsidiary CCE are not attributed to its parent corporation (and thus do not taint the parent as a CCE). Commercial activities of one CCE are not attributed to a brother or sister corporation that is commonly controlled either.

Other than in the case of publicly traded partnerships, however, commercial activities of a partnership will taint any partner controlled entities as CCEs. Similarly, under the temporary regulations taint also can spread downstream from a CCE to any lower tier controlled entity.24

Coordination With FIRPTA

Gain from the sale of stock of a noncontrolled corporation by a foreign government generally is exempt from tax under Code Sec. 892.25 The exemption for income from the sale of corporate shares applies even where the shares constitute stock in a U.S. real property holding corporation (USRPHC). Stock of a USRPHC is generally treated as a United States real property interest (USRPI) gain from which is otherwise taxable to foreign investors under Code Sec. 897(a).26 The governmental exemption does not apply, however, to gain from the disposition of a direct interest in U.S. real estate.27 In other words, the Code Sec. 892 temporary regulations draw a distinction between gain from the disposition of USRPIs that comprise direct interests in real property described in Code Sec. 897(c)(1)(A)(i), which are taxable under Code Sec. 892, and gain from the disposition of USRPIs that comprise stock in a USRPHC described in Code Sec. 897(c)(1)(A)(ii), which are not taxable under Code Sec. 892. Temporary Reg. §1.892-5T(b) (1) provides that a USRPHC or foreign corporation that would have been a USRPHC if it were a U.S. corporation, and that meets the ownership test for a CCE, will be deemed to be a CCE.

An interesting issue arises with respect to certain distributions from real estate investment trusts (REITs). Code Sec. 897(h)(1) treats any distribution from a noncontrolled REIT to a foreign corporation or other REIT that is attributable to gain from the sale or exchange of a USRPI as gain from the sale or exchange of a USRPI, effectively characterizing the amount distributed as being subject to FIRPTA following a taxable form of disposition of USRPIs by the REIT.28 Historically, many U.S. tax practitioners took the view that Code Sec. 892 exempted the distributions from a REIT as a dividend. This view was supported by the plain language of Code Sec. 892 and the temporary regulations which exempt from U.S. tax, income of a foreign government from an investment in stock (other than stock of a CCE).29

Similarly, practitioners historically did not consider Code Sec. 897(h)(1) to apply to a liquidating distribution from a noncontrolled REIT. Under Code Sec. 331, a shareholder recognized gain on a sale of stock, and that treatment was generally viewed to override the recharacterized rule in Code Sec. 897(h)(1).30

On June 13, 2007, however, the IRS issued Notice 2007-55.31 The Notice announced how future regulations will "clarify" that a distribution from a REIT that is attributable to gain recognized by a noncontrolled REIT on the sale of a USRPI prior to a liquidation, does not avoid application of Code Sec. 897(h)(1) and does not qualify for any Code Sec. 892 exemption, and so will be subject to tax under FIRPTA (and to FIRPTA withholding under Code Sec. 1445). The Notice states that "the IRS will challenge under current statutory and regulatory provisions an assertion that § 892 exempts from taxation distributions from a [REIT] that are treated under § 897(h)(1) as gain recognized by a foreign government shareholder from the sale or exchange of a USRPI described in § 897(c) (1)(A)(i)." The Notice is controversial and is expected to be challenged by sovereigns who planned their holdings of U.S. real property through private REITs long before issuance of the Notice.

Comparing Code Sec. 892 And UBIT Rules

The exemption under Code Sec. 892 is generally more limited than the exemption available to Code Sec. 501 tax-exempt organizations.32 Those organizations include religions and educational institutions, instrumentalities of the U.S. government, pension trusts, and certain private foundations. Code Sec. 501(b), however, permits imposition of the unrelated business income tax (UBIT).33

The purpose of UBIT was reflected in the Senate Report accompanying Code Sec. 511: "the problem at which the tax on unrelated business income is directed is primarily that of unfair competition. The tax-free status of § 501(c) organizations enables them to use their profits tax-free to expand operations, while their competitors can expand only with the profits remaining after taxes."34 In this regard, the exemptions under Code Secs. 501 and 892 are similar; both allow profit-making activities relevant to the purpose for which they are given an exemption (in the case of Code Sec. 892, governmental functions) but tax income not relevant to that purpose and activities that compete with other taxable businesses. UBIT, however, is imposed on a narrower base than income that is subject to tax after applying the Code Sec. 892 exemption.

UBIT is imposed on "the gross income derived by any organization from the unrelated trade or business ... regularly carried on by it" subject to deductions.35 Initially, UBIT is limited to income from a trade or business, which is not defined in Code Sec. 511. As explained above, the governmental exemption only protects certain types of income from U.S. tax. Moreover, although the exemption exceptions in Code Sec. 892 were initially linked to income from a trade or business as defined in Code Sec. 864(b), that link was removed from the current regulations, expanding the exceptions to capture certain commercial income, whether or not from a trade or business.

July–August 2008 The exemption for U.S. tax-exempts generally excludes more and broader categories of income from tax. Unlike the governmental exemption, other passive income, such as royalties, is also exempt from UBIT.36 Additionally, income from several other types of activities, which would generally be subject to tax, are also excluded from the reach of UBIT. Specifically excluded from "unrelated trade or business," are businesses staffed by volunteers, sales of donated merchandise, businesses operated for the convenience of constituents, certain entertainment and recreational activities at fairs and similar events, certain activities at conventions and trade shows, bingo games, small hospitals providing services for each other, agricultural or horticultural organizations' provision of "benefits or privileges" for their members, provisions of low cost articles in connection with solicitations of contributions, exchanging or renting mailing lists and uses of the names or acknowledgments of corporate sponsors.37

Of particular note, real property rents are generally exempt from UBIT, regardless of whether the management of the property would be an active trade or business, provided the rents are not based upon the income or profits derived from the property.38 Gain from the sale or disposition of real property is also generally exempt from UBIT.39 Foreign governments, on the other hand, are obviously subject to tax under FIRPTA on any income attributable to a U.S. real property interest (other than gain from the disposition of stock of noncontrolled USRPHC), even if the income is not derived from a trade or business.40

As in the case of the governmental exemption, income from dividends and interest and gain from the sale of stock, is generally not subject to tax under the UBIT rules either. With respect to investments in subsidiaries, the exemptions differ: Dividends and interest are eligible for exemption under Code Sec. 892 if the sovereign owns less than 50 percent of the stock of the payor by vote or value, and if the payor is not otherwise a CCE. By contrast, Code Sec. 512(b) (13) subject to UBIT only interest, royalties and rents (but not dividends) received from certain controlled entities; and for this purpose, a corporation is considered "controlled" only if the exempt organization owns stock possessing more than 50 percent of the vote or value of all of the stock (actually or constructively, applying the rules of Code Sec. 318). Similar rules apply to payments from a partnership or other controlled entity.41

Another important distinction between the governmental exemption and that of U.S. tax-exempts is that a controlled entity's exemption automatically terminates under Code Sec. 892 if it earns even a scintilla from a commercial activity, while a U.S. tax-exempt's exemption is not. Thus, if a controlled entity of a foreign sovereign has commercial activity anywhere in the world, it will be a CCE and will no longer be exempt from any U.S. income tax. In addition, income from that entity could be subject to tax when paid to the hands of any governmental parent, assuming it is U.S. source, effectively connected, income. With respect to U.S. tax-exempts, however, the tax imposed on unrelated business income generally has no impact on the treatment of the entity as otherwise tax-exempt.42

The treatment of income from subsidiaries or other entities held by U.S. tax-exempts is also significantly different than the treatment of such income to foreign governments. If an exempt organization holds an interest in a passthrough entity, such as a partnership or common trust fund, the organization's share of the entity's income is treated as unrelated business income only to the same extent that it would have been if the entity's activities and assets were earned or held by the U.S. tax-exempt.43 In contrast, commercial activities of a partnership held by a controlled entity of a foreign government are attributed to the foreign government and that attribution causes a controlled entity that is a partner to be treated as a CCE, effectively tainting all of its other income under Code Sec. 892 and possibly subjecting the sale of the partnership interest to U.S. tax.44

As noted previously, the Code Sec. 892 rules with respect to investments in real estate are also more restrictive than under the UBIT rules. Income from leasing real property is generally considered a nonexempt "commercial activity" under Temporary Reg. §1.892-4T(c) unless the real property produces income only from a net lease. Furthermore, income from sales of real property is not exempt under Code Sec. 892.45 Under UBIT, rental income generally is exempt from classification as an unrelated trade or business unless it is based on personal property or business profits.46 Gains and losses from the sale of property, including real property, are generally exempt from UBIT unless it is inventory.47

While the UBIT regime generally provides a broader exemption than Code Sec. 892, it is more restrictive in at least one respect: the exclusion for tax-exempts does not cover income from debt-financed property.48 Generally, property is "debt-financed property" if it is held to produce income and acquisition indebtedness with respect to the property exists at any time during the tax year (or, in the case of a disposition, at any time during the preceding 12 months).49 There is no similar rule under Code Sec. 892.

U.S. pension plans are generally exempt from the debt-financed limitation.50 If one or more qualified pension plans owns too much stock of a REIT, however, dividends received from the REIT are treated as income from an unrelated business to the extent that the REIT has net income from an unrelated trade or business.51 Pursuant to Code Sec. 856(h)(3)(C), if a pension fund holds more than a 10-percent interest in any "pension held REIT" at any time during the year, the REIT will be treated "as having for such taxable year gross income from unrelated trade or business in an amount which bears the same ratio to the aggregate dividend paid ... as the gross income of the REIT for the REIT year from unrelated trades or businesses, bears to the gross income of the REIT for the year."52 A REIT is considered to be a pension-held REIT for this purpose if any pension plan holds more than 25 percent of the REIT interests or pension funds holding at least 10 percent of the REIT hold more than 50 percent of the REIT in the aggregate. However, income earned by the REIT, which would not have been UBIT if earned directly by the U.S. pension plan, is not subject to this UBIT deeming rule.

Despite their divergence, the UBIT rules have some application to the governmental exemption in the area of pension funds.53 A pension fund that is operated by and for the benefit of the employees of a foreign government, as described in Temporary Reg. §1.892-2T(c), will not be treated as a controlled commercial entity if it solely earns income that would not be treated as UBIT under Code Sec. 512(a)(1) if the fund were a qualified trust described in Code Sec. 401(a).54 The UBIT rules appear to have no other direct application to controlled entities other than pension funds; instead, income controlled entities will be subject to U.S. tax and not exempt under Code Sec. 892 if such controlled entities engage in commercial activity.

The legislative history of Code Sec. 892 and the temporary Treasury regulations offer no rationale for the variance between UBIT and income of a foreign government from commercial activity.


The justification for the exemption from U.S. taxation of foreign sovereigns is grounded in fundamental notions of comity and sovereign immunity, which, as interpreted for over 30 years, do not extend to commercial activities, to avoid providing an unfair comparative advantage. The same rationale applies to unrelated trade or business income of an otherwise tax-exempt U.S. organization (whether religious, educational, labor, social or pension fund).

Strong parallels would appear to exist between the rationale for exemption of both groups. Yet, the Code Sec. 892 exemption is generally more narrow, but in limited circumstances, more broad, than the rules applicable to the unrelated business income of U.S. tax-exempt organizations.

Perhaps it is time to broaden the Code Sec. 892 exemption and harmonize it with the exemption applicable to tax-exempt organizations. In its deliberations, Congress might to be reminded of the preference for a balanced and rational approach to equating the taxation of the commercial income of both foreign governments and tax-exempt organizations, since the exemptions both carry similar potential competitive advantages (over taxable U.S. businesses). Harmonization could also improve the international competitiveness of the U.S. capital markets, assist in reducing the United States's balance of payment deficit, and improve U.S. capital import and capital export neutrality.


1. Department of Treasury, Appendix 3 Sovereign Wealth Funds, June 13, 2007.

2. Subsequent to the draft of this article, the Joint Committee on Taxation and the New York Bar Association Tax Section both issued reports on SWFs. Joint Comm. on Taxation, Economic and U.S. Income Tax Issues Raised by Sovereign Wealth Fund Investment in the United States (JCX-49-08), June 17, 2008; NY State Bar Assoc. Tax Section, Report on the Tax Exemption for Sovereigns under Section 892 of the Internal Revenue Code, June 2, 2008. Their reports confirmed the analysis of this article but did not propose liberalizing Code Sec. 892 in the manner suggested herein.

3. Press Release, U.S. Committee on Finance, Baucus, Grassley Seek JCT Analysis of U.S. Taxation of Sovereign Wealth Funds, Mar. 13, 2008. While the focus of Congress and the press has been on the investment by foreign SWFs into the United States, some SWFs are domestic, such as the Alaska Permanent Reserve Fund, which the IMF has estimated holds $40 billion.

4. Id.

5. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended (the "Code") or the Treasury regulations promulgated thereunder.

6. Codified in Code Secs. 897, 1445 and 6039C.

7. T.D. 8211, 53 FR 24064 (1988). T.D. 9012 later finalized Reg. §1.892-5(a)(3) and (4), which as modified provide that a partnership may be a controlled commercial entity.

8. Code Sec. 6232, which provides that temporary regulations expire three years after their date of issuance, applies only with respect to temporary regulations issued after November 20, 1988, and thus has no application to Reg. §1.892-1T et seq.

9. Temporary Reg. §1.892-2T(a)(1). This definition was originally promulgated as part of the 1980 regulations. But see L. Vial, 15 TC 403, Dec. 17,870 (1950), acq'd, 1952-1 CB 4 (holding that a corporation serving governmental functions for Chile could qualify for exemption under the predecessor to Code Sec. 892).

10. Temporary Reg. §1.892-2T(a)(2).

11. Id.

12. Temporary Reg. §1.892-2T(a)(2).

13. Reg. §1.892-2T(c). A fund that is an integral part may also qualify for the exemption under Code Sec. 892.

14. Code Sec. 892; Temporary Reg. §1.892-3T(a).

15. Temporary Reg. §1.892-3T(a).

16. Temporary Reg. §1.892-3T(a)(3).

17. Temporary Reg. §1.892-3T(a)(5).

18. Temporary Reg. §1.892-3T(a)(4).

19. Temporary Reg. §1.892-3T(a)(3).

20. Temporary Reg. §1.892-4T(b). See also, Quantas Airways Ltd., CtCls, 97-1 USTC ¶50,344, aff'd, CA-FC, 98-2 USTC ¶50,859 (lease of excess office space considered a commercial activity).

21. Temporary Reg. §1.892-4T(c). Presumably, investments in U.S. stocks, bonds and other securities under Code Sec. 892 would also include derivatives, since the proposed regulations extend the exclusion from a Code Sec. 864(b) U.S. trade or business to income from trading derivatives. Proposed Reg. §1.864(b)-1(a). Cultural events, nonprofit activities and governmental functions are also not commercial activities. Temporary Reg. §1.892-4T(c).

22. Code Sec. 892(a)(2)(B).

23. Temporary Reg. §1.892-5T(c)(2).

24. Temporary Reg. §1.892-5T(d)(4), Example 4.

25. Foreign corporations and nonresident aliens are generally exempt from U.S. income tax on gain from the sale of stock unless such gain is effectively connected with a U.S. trade or business or deemed to be effectively connected under Code Sec. 897. Code Secs. 860, 871 and 881.

26. Temporary Reg. §1.897-3T(b), Example 1.

27. Temporary Reg. §1.892-3T(a)(1). The exclusion of income from direct interest in real property is particularly interesting in light of the exclusion of new leases from commercial activity.

28. Code Sec. 897(h)(i). The notice and regulations refer to a qualified investment entity which includes a REIT or a regulated investment company. For purposes of this memorandum we refer to a REIT when discussing these rules.

29. Code Sec. 892; Temporary Reg. §1.892-3T.

30. See Reg. §1.856-1(e)(3) (also covering redemptions of REIT stock treated as a sale or exchange). cf. Peter Genz, Tax Issue Arising in REIT Liquidations (Jan. 15, 2008) (distributed at ABA Tax Section meeting in Las Vega, Nevada).

31. Notice 2007-55, IRB 2007-27, 13.

32. Certain foreign organizations qualify for exemption under Code Sec. 501(a), but the focus of this discussion in on domestic tax-exempt organizations.

33. Code Sec. 511.

34. S. REP. NO. 2375, 81st Cong., 2d Sess., 1950-2 CB 483, 504–05.

35. Code Sec. 512.

36. Code Sec. 512(b).

37. Code Sec. 513.

38. Code Sec. 512(b)(3).

39. Code Sec. 512(b)(5).

40. Temporary Reg. §1.892-3T(a).

41. Temporary Reg. §1.512(b)-1(l)(4)(a).

42. Code Sec. 501(b).

43. Code Sec. 512(c)(1); Reg. §1.512(c)-1.

44. Temporary Reg. §1.892-5T(d)(3). Query, however, whether Rev. Rul. 91-32 would be upheld by a court?

45. "Any gain, derived from the disposition of a U.S. real property interest defined in § 897(c)(1)(A)(i) shall in no event qualify for exemption under § 892." Reg. §1.892-3T(a)(1).

46. Code Sec. 512(b)(3).

47. Code Sec. 512(b)(5).

48. Code Sec. 514.

49. Code Sec. 514(b)(1).

50. Code Sec. 514(c)(9).

51. Code Sec. 856(h)(3)(C).

52. Id.

53. Often, the practical implications of the availability of Code Sec. 892 exemption to pension funds are small because of the availability for exemption under tax treaties with the United States. However, related party dividends and interest are generally excluded from treaty benefits and there is usually no exemption from FIRPTA for interests in noncontrolled USRPHCs.

54. Temporary Reg. §1.892-5T(b)(3). The temporary Treasury regulation provides further, however, that even if a pension trust earns no income that would be UBIT (and thus is not a controlled commercial entity), its income from commercial activities will not be exempt under Code Sec. 892. Because the income is of the type described in Temporary Reg. §1.892-3T and is not income from commercial activities as described in Temporary Reg. §1.892-4T. Temporary Reg. §1.892-5T(b)(3).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.