Colleagues have previously blogged about US tax reform and the impact on US retirement plan provisions. We highlight in this blog the key takeaway points from the US tax reform that will impact upon non-US institutional investors.  In particular, it is worth noting that pension funds investing through partnership structures and/or real estate may be affected by the new tax provisions.  Significant consequences of the US tax reform include:

  • Corporate rate reductions will, in conjunction with limitations on the deductibility of interest expense, cost recovery and international changes, impact the values of US corporations generally.
  • Rate reductions will impact the level of taxation of those non-US institutional investors that realize US trade or business income (commonly referred to as “effectively connected income” or “ECI”) or gains from disposition of certain interests in US real estate.
  • Tax law changes will impact the tax treatment and valuation of investment asset classes such as corporate equities and investments in real estate and private equity.
  • The tax treatment of private investment funds and their managers will also be impacted with potential collateral effects on non-US institutional investors.  Seeking to resolve a decade old controversy over the taxation of carried interests granted to fund managers, the legislation imposes a three-year holding period requirement for partnership interests held by fund managers in order for the gains to be treated as long-term capital gains that are taxable at preferential rates.  Non-US institutional investors may wish to be alert to possible proposals from fund managers to address this change.
  • Many non-US institutional investors currently use intermediary entities as investment vehicles, including US corporations that serve to “block” the ultimate non-US investor from US income tax payment and return filing obligations.  To promote tax efficiency, these US blockers have frequently been capitalized with a combination of debt and equity.  These arrangements may need to be revisited, both prospectively and retrospectively.

These impacts are only illustrative.  Others will no doubt emerge in connection with specific investments and investment structures and will be identified as the new legislation is analysed in more depth, as implementation issues arise, and as administrative interpretations are issued.  If you would like to discuss the potential impact of the US tax reforms for your business or pension plan please do get in touch with me, Lindsay M Fainé ( or my UK colleague, Timothy Jarvis (