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212.573.8412
setkind@sglawyers.com

Alex Gelinas
Partner
212.573.8159
agelinas@sglawyers.com

Please feel free to discuss any aspect of
this Alert with your regular Sadis &
Goldberg contact or with any of the
partners whose names and contact
information can be found at the end of
the Alert.

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On December 18, 2015, President Obama signed into law a bill that significantly reforms the provisions
of the Internal Revenue Code that were originally added 35 years ago by the Foreign Investment in
Real Property Tax Act of 1980 (FIRPTA). The Protecting Americans from Tax Hikes Act of 2015 (the
"PATH Act") also includes extensions of a number of tax relief provisions that expired at the end of
2015. The PATH Act makes foreign capital investment in U.S. real estate, energy and infrastructure
assets more attractive by expanding certain exemptions from FIRPTA and clarifying the application of
certain FIRPTA provisions to REITs and their shareholders.

I. FOREIGN PENSION FUNDS EXEMPTED FROM FIRPTA TAXATION

One of the most significant provisions of the PATH Act is the addition of a complete exemption from
FIRPTA for "qualified foreign pension funds" and "entities" wholly owned by such funds, effective on
the date of enactment. A foreign pension fund is "qualified" if it is subject to government regulation
and certain reporting requirements in its home jurisdiction, is established to provide retirement or
pension benefits to participants or beneficiaries that are current or former employees, has no greater
than 5 percent beneficiaries, and enjoys tax benefits on either contributions or investment income in
its home jurisdiction. The new exemption applies to direct investments and investments made
through partnerships (including private equity funds). The PATH Act provides for certain details to be
addressed by Treasury Regulations. It appears that the "entities" eligible for the FIRPTA exemption
could include a U.S. or foreign "blocker" corporation that is wholly owned by a qualifying foreign
pension fund. This exemption will, for the first time, permit foreign pension funds, including some
governmental funds, to hold control positions in REITs without losing their FIRPTA exemption.

Note that the regular rules of the Internal Revenue Code other than FIRPTA still would apply to the
foreign pension fund. Therefore, a foreign pension fund that invested in a partnership that was
engaged in a U.S. business (real estate or non-real estate) would still be subject to U.S. federal income
tax on its share of the partnership's "effectively connected" U.S. business income in the same manner
as other non-U.S. persons making an investment in a U.S. business partnership.

Here are some examples of what can be done in light of the changes made by the PATH Act:

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