United States

International tax considerations for timberland investment funds

INSIGHT ARTICLE

In recent years, the IRS has significantly increased efforts to enforce international tax reporting and withholding obligations by assessing substantial penalties for failure to comply with related standards. These obligations (and any related penalties) typically will apply to a U.S. investment fund, its owners, and certain employees. Below are some common examples of structures which could require U.S. reporting or withholding obligations for a U.S. timber fund or its non-U.S. investors:

Non-U.S. entities with U.S. owners

If your structure includes offshore companies with any U.S. ownership, you could have numerous reporting and tax obligations both within the U.S. and the foreign country, including:

  • Informational reporting and disclosure of the entity, its owners and financial information to the IRS
  • Recognition of certain income and deductions of the foreign company on the U.S. tax return of its U.S. owners
  • Reporting foreign bank account information 
  • Transfer pricing considerations
  • Examination of treaty benefits
  • Elections available to select a tax-advantageous classification of entity
  • Foreign tax credits

U.S. entities with non-U.S. investors

If there are non-U.S. investors in your U.S. fund, the U.S. fund could have numerous reporting and withholding requirements, and the non-U.S. investor could have U.S. reporting and income tax obligations.

Reporting and withholding obligations can widely vary, depending upon the following:

  • The type of entity in which the non-U.S. person is invested
  • Availability of benefits under a relevant treaty

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