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IRS Issues Final Regulations On REIT Spin-Offs

Tuesday, January 24, 2017

On January 18, the US Internal Revenue Service (IRS) issued its final regulations regarding the measures included in the Protecting Americans from Tax Hikes (PATH) Act to restrict the tax-free spin-offs involving publicly traded real estate investment trusts (REITs).

US REITs do not pay corporate tax as long as at least 75 percent of their total assets are real estate assets and/or cash; at least 75 percent of gross income comes from real estate-related sources; and at least 90 percent of their taxable income is distributed to shareholders annually in the form of dividends.

Prior to the PATH Act, more American corporations were encouraged to consider spinning-off assets into REITs, when the IRS began to accept that non-traditional real estate assets (such as warehouses, shopping centers, health care facilities, and telecommunication assets) could be held in a REIT.

Such spin-offs are capital gains tax-free for both the distributing corporations and their shareholders and enables them to limit their exposure to the US's 35 percent corporate tax rate. Subsequently, REITs normally lease the property back to the distributing corporations, to be utilized in the latter's operations.

However, the PATH Act laid down that a spin-off involving a REIT will qualify as tax-free only if, immediately after the distribution, both the distributing and controlled corporation are REITs.

The only change that the IRS has made in its final regulations was to relax the "recognition period" – the length of time during which a REIT could still be subject to capital gains and corporate tax on certain dispositions of property – to five years from the 10 years it had originally imposed.

On October 18, 2016, the Chairmen and Ranking Members of the House of Representatives Ways and Means Committee and the Senate Finance Committee had written to the Treasury Secretary that the 10-year recognition period introduced unilaterally by the IRS in its temporary regulations "was inconsistent with congressional intent and the longstanding practice of treating REITs as having the same built-in gain recognition period as S corporations, currently five years."

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Offshore Trusts Guide: Introduction

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What Future for the Trust?
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Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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