David Polster, a partner at law firm Skadden Arps, joined REIT.com for a video interview at REITWise 2016: NAREIT’s Law, Accounting and Finance Conference at the Marriott Marquis in Washington, D.C.
Polster outlined the four main revisions made to the Foreign Investment in Real Property Tax Act (FIRPTA) rules by the Protecting Americans from Tax Hikes Act:
- An expansion of the publicly traded exception, effectively doubling the amount of investment that a foreign individual can make in a U.S. publicly traded REIT, as well as the inclusion of small public shareholders in the exemption;
- An exemption for qualified foreign pension funds;
- The creation of a set of presumptions as to what qualifies as a domestically controlled REIT; and
- Changes to the so-called Cleansing Rule.
Polster described the first two provisions as “game changer provisions” because of their impact on the level of foreign investment in U.S. real estate. He noted that foreign pension funds are already “ramping up and working on investments to take advantage of that rule.”
Meanwhile, Polster observed that the long process of FIRPTA reform has been beneficial in that it focused attention inside and outside of Congress on the intricacies of the rules.
“When you focus on the FIRPTA rules, you don’t really like what you see. The provisions in general are not really great tax policy,” Polster said. He noted that the provisions don’t raise significant revenue and create impediments to foreign investment, while their complexity increases transaction costs.
An additional benefit of the long reform process is interest among some for a full repeal of FIRPTA, according to Polster.