I’m a US tax payer who purchased fund units, but I’m having trouble understanding the tax liability presented by the PFIC statement compared to actual gains.
I received a PFIC statement for 2023 tax year, which states for IMGA Acoes PT Cat R, per share:
Ordinary earnings: 0.000628
Net capital gains: 0.002708
These numbers are per-day, so assuming one had held it for 365 days, per share:
Ordinary earnings: 0.2292
Net capital gains: 0.98842
From FT market data, the price of a unit of IMGA Acoes Portugal R is:
02 Jan 2023: 6.32
29 Dec 2023: 7.29
Price change per share in a year: 0.97 euros or US$1.05
Putting it all together, for a hypothethical investment of 60,000 units:
Actual change in stock value: US$63,000
Taxable capital gains: US$59,305
Taxable ordinary income: US$13,752
This seems punitive, especially because the combined taxable gains/income seems to exceed the actual change in stock value by more than $10,000. Am I missing something?
Separately, with PFIC QEF election, it seems I’m immediately taxed every year on the gains (as if I sold it). Do I get a refund if the market value of the stock drops? Additionally, will Portugal tax me when I eventually do sell it, and would I be able to claim a tax refund against my US taxes at the last year? If not, I’d be taxed 28% + 30% (ordinary + gains tax) = ~58% on my PT investments, which seems very harsh.
I am with you on the calculations and on all your questions. I do not understand how all this works. At the moment I am just assuming QEF election is the best and paying taxes on these huge unrealized gains. I am also wondering if other elections such as market to market would have made more sense. Where you pay the income tax on the value change at ordinary income. Much easier to track it.
I also have a hunch that the specific class of this fund meant for GV has been setup to benefit the fund company and tack on the taxes to us. It may be all in the fine print.
I’m assuming the difference between the pfic reported gains and actual gains will be squared up at tax time after you sell the investment - that’s part of the whole point of pfic I believe
Those are all great questions though and have been confusing us in the other thread about imga pfic taxes
The sums do not all always add up.
(a) management fees. not zero.
(b) timing factors - you get to pay cap gains when realized; NAV/last-price may reflect unrealized gains/losses.
(c) valuation is a tricky thing on the whole, especially in a small open-ended fund investing in relatively illiquid markets. Which describes the entirety of PT.
QEF is effectively a pass-through of taxable events. So yes, if the fund loses money the next year, you get a cap loss in exchange. (Potentially ordinary losses could get passed back as well, I’d have to look at the mechanics, but it might also just come off basis.)
As an offshore investor, you aren’t being taxed by PT. If you get tax residency by then and do get taxed by PT, then you will get a tax offset. The mechanics of how that will work will be situation-dependent and far beyond this topic.
As I keep saying. Welcome to how the rest of the world works. It isn’t the same. This isn’t the world being out to get you specifically as a GV holder. It’s just the world being out to get people in a more general sense.