New Proposed Regulations for Withholding on Transfers of Certain Partnership Interests
New Proposed Regulations for Withholding on Transfers of Certain Partnership Interests
By Simon Lee
June 2019
On May 7, 2019, the U.S. Treasury Department (Treasury) and the U.S. Internal Revenue Service (IRS) issued proposed regulations with guidance on how to apply withholding tax under U.S. Internal Revenue Code (IRC) Section 1446(f) on a transfer by a non-U.S. person of an interest in a partnership that carries on a trade or business in the U.S. or otherwise realizes income effectively connected with such a trade or business (ECI). These proposed regulations are potentially relevant to any non-U.S. investor in such a partnership.
Partners in publicly traded partnerships (PTPs) would most likely hold their interests through nominees such as brokers and custodians. The proposed regulations would require a tax equal to 10 per cent of the gross proceeds on any transfer of interest in such a PTP by a non-U.S. person to be withheld. Here, a transfer involves a sale, exchange, or other isposition of interest in a partnership. he seller broker that receives the gross roceeds from the transfer and acts on behalf of such a transferor would be required to withhold the tax.
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Simon Lee
Vice President, Tax, CIBC Mellon
This article is provided for general information purposes only and CIBC Mellon and its affiliates make no representations or warranties as to its accuracy or completeness, nor do any of them take any responsibility for third parties to which reference may be made. This article should not be regarded as legal, accounting, investment, financial or other professional advice nor is it intended for such use.
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