I am still trying to understand tax issues and compliance rules (proper filing of forms). I heard from one tax advisor in US who says he can address these questions - is anyone familiar the answers already or desire to be part of a call with him?
Clarify PFIC taxation rules, including how profit and loss are reported to the IRS.
Discuss different PFIC reporting methods (QEF, MTM, and excess distribution) and their implications.
Review how to calculate gains, losses, and basis adjustments for PFICs.
Confirm annual filing requirements for PFICs (Form 8621) and any related forms.
Explore strategies to minimize tax impact on PFIC income and losses.
You can’t do anything to minimize taxes for PFIC. The best you can do is file the QEF in the year they are determined to be PFIC and you will you pay ordinary income tax on any capital gains (including long term).
The fund will have to provide a PFIC annual statement which has very specific requirements including a statement that the shareholder can inspect their books etc.
Absolutely make sure you make the QEF election otherwise the penalties are absolutely crushing.
What I’m trying to figure out is assuming you elect QEF and pay tax on increase in NAV (a capital gain) that you haven’t actually realized due to a sale but elect to pay anyways, then what happens if next year it goes down (presumably no tax) but then reverts to original price. This seems like you’d be paying on the same gain a second time and maybe again and again.
Then if you sell later as it’s a PT based asset, you might need to pay cap gain tax in PT even if a non tax resident.
I thought I read the rate for the QEF is the cap gain rate vs ordinary - but even still it seems like you’re tax over and over. It’s also odd that it’s so hard to nail down the exact tax treatment.
The PFIC issue is indeed challenging. I used a US tax advisor and pay tax on the unrealized gains each year under a QEF election. I pay the LTG rate on actual long term gains and the ordinary income rate on short term gains and income.
The advice seems to vary substantially which is disconcerting. I am open to any additional understanding and interpretations.
You don’t pay on unrealized gains under QEF. You only pay on realized gains. The only difference here is that “realized” means “realized by the fund” which may or may not have any relationship to you getting written a check. So when the fund gets written a dividend check, you get your pro-rated share of that check. If they get regular income (interest or business revenue), you get your pro-rated share. If there is a cap gain or loss from a sale, you get your share of that. It’s as simple as that.