Is this a PFIC
May 15th 2018, 9:12 am
#1
Just Joined
Thread Starter
Joined: May 2018
Posts: 2
Is this a PFIC
What's a PFIC?
Many years ago, I had someone prepare my US returns. For various reasons, I have a few shares in an investment management company (rathbones (not the bread)), but am not a client of theirs! The preparer declared that these shares are a PFIC as the entire company is a PFIC. That doesn't make sense to me as the company makes it's money from charging clients for financial management. If Merrill Lynch moved to London, would it be a PFIC? Just asking for any opinion on this.
I've been marking it as a PFIC for years due to the preparer so don't know what would happen if I stop doing that and declare it isn't one. Might be best to sell the shares and invest in something else..
Many years ago, I had someone prepare my US returns. For various reasons, I have a few shares in an investment management company (rathbones (not the bread)), but am not a client of theirs! The preparer declared that these shares are a PFIC as the entire company is a PFIC. That doesn't make sense to me as the company makes it's money from charging clients for financial management. If Merrill Lynch moved to London, would it be a PFIC? Just asking for any opinion on this.
I've been marking it as a PFIC for years due to the preparer so don't know what would happen if I stop doing that and declare it isn't one. Might be best to sell the shares and invest in something else..
May 15th 2018, 1:25 pm
#2
Just Joined
Joined: Apr 2018
Posts: 7
Re: Is this a PFIC
Shares in an individual company like Rathbones are likely a PFIC.
May 21st 2018, 10:24 pm
#3
Grumpy Know-it-all
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Re: Is this a PFIC
What you need to understand (as you keep asking these questions) is that the whole thing is set up in such a way to make it extremely hard to invest in anything outside the US without going through a US entity. The official reason for this is to ensure the US Dept. of Treasury knows what is going on; the real reason is that Wall Street doesn't want the competition. If it were just a case of keeping an eye in people, form 3520-A and 8621 wouldn't be so hard to fill in, so they've made the hassle factor enormous.
May 22nd 2018, 5:39 pm
#4
Lost in BE Cyberspace
Joined: Jul 2008
Location: Portlandia Metro
Posts: 7,425
Re: Is this a PFIC
If you really want to keep UK stock, I would probably go via a US brokerage firm like Vanguard, who have the options of holding UK stock. When I say US firm, I mean opening the account with the US arm, not the UK arm.
May 23rd 2018, 9:29 pm
#5
Grumpy Know-it-all
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Re: Is this a PFIC
But those are always hedged into US dollars, holding stuff in Sterling is incredibly hard.
If you look at the equivalent Canadian forms they're simple compared to the US ones, look at form 5471 for example then look at T1134, the Canadian equivalent. Or Form 8938 then look at T1135, the Canadian equivalent. Supposedly the complexity comes from US tax law, but I can't help noticing that form 8621 makes it extremely hard to hold non-US securities. You have to use a US registered broker (as you have use a UK registered one if you live in the UK) but if you hold foreign securities in another currency, it's an enormous ballache. It is in Canada as well but it's much easier than in the US. So if you are in the unhappy position of being a US person who lives outside the US, you really are properly buggered.
If you look at the equivalent Canadian forms they're simple compared to the US ones, look at form 5471 for example then look at T1134, the Canadian equivalent. Or Form 8938 then look at T1135, the Canadian equivalent. Supposedly the complexity comes from US tax law, but I can't help noticing that form 8621 makes it extremely hard to hold non-US securities. You have to use a US registered broker (as you have use a UK registered one if you live in the UK) but if you hold foreign securities in another currency, it's an enormous ballache. It is in Canada as well but it's much easier than in the US. So if you are in the unhappy position of being a US person who lives outside the US, you really are properly buggered.
Jun 13th 2018, 5:37 pm
#6
Forum Regular
Joined: Jan 2010
Location: Austin, Texas
Posts: 54
Re: Is this a PFIC
Rathbones may not be a PFIC. It depends how they make their money. From what I know of them they are investment managers so would make their money on investment management fees. This is an active trade or business so is not a passive activity, therefore by itself would not make them a PFIC. If they get a substantial amount of income from investments in other companies then they might be.
In short, to figure it out you would need their financial reports, and cross reference them with the PFIC definition.
As a shareholder you could also ask them. I went through this with another UK company previously.
It’s complicated. As a rule never invest in a non-us fund. UK Companies who’s primary income source is an active trade or business, like a manufacturer, are generally fine.
PFIC’s are a total ballache I agree. I personally have prepared 96 PFIC forms over the last 2 years and never wish to see one again.
In short, to figure it out you would need their financial reports, and cross reference them with the PFIC definition.
A PFIC primarily is used as a passive investment vehicle. Characterization of a foreign corporation as a PFIC is determined by the satisfaction of either an income or asset test. The income test requires that 75 percent or more of a foreign corporation’s gross income consist of passive income. The asset test requires at least 50 percent of the foreign corporation’s average assets (based on either value or, in certain circumstances, adjusted tax basis) held during the tax year produce passive income. Typically, passive income is defined to include dividends, interest, rents, royalties, annuities, certain personal service contracts, income from notional principal contracts, and certain gains from sale of property. Rents and royalties that originate from an active trade or business are excluded from the definition of passive income.
It’s complicated. As a rule never invest in a non-us fund. UK Companies who’s primary income source is an active trade or business, like a manufacturer, are generally fine.
PFIC’s are a total ballache I agree. I personally have prepared 96 PFIC forms over the last 2 years and never wish to see one again.
