For purposes of income tax in the U.S., U.S. persons owning shares of a passive foreign investment company (PFIC) may choose between (i) current taxation on the income of the PFIC or (ii) deferral of such income subject to a deemed tax and interest regime.See the Conference Committee Report pages II-640, et seq., on Section 1235 of the Tax Reform Act of 1986. limited the application in the case of U.S. Shareholders of controlled foreign corporations.
Any foreign (i.e., non-U.S.) corporation meeting either the income test or the asset test is a PFIC with respect to each shareholder when the test is met. PFIC status applies separately for each U.S. person owning shares, and also separately with respect to shares acquired at different times. PFIC status does not, itself, have any impact on the foreign corporation or foreign shareholders.
The income test is met if 75% or more of the foreign corporation's gross income is passive income, defined as foreign personal holding company income with modifications.
The asset test is met if 50% or more of the foreign... Read More