[ Offshore Tax ] Can we talk about the dreaded “PFIC”?

A foreign corporation is a PFIC if it meets either the income or asset test:
1. Income test. 75% or more of the corporation’s gross income for its tax year is passive income (as defined in section 1297(b).
2. Asset test. At least 50% of the average percentage of assets, (determined under section 1297(e)) held by the foreign corporation during the tax year, are assets that produce passive income or that are held for the production of passive income.

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DERREN JOSEPH:
That’s one or two of you were asking about something called a PFIC or PFIC. So this unfortunately is something that we deal with every day. What is a PFIC? a PFIC or PFI stands for a passive foreign investment company. What does that mean? So under us tax rules, international tax rules, there are what we call there’s a classification of rules that we call anti-deferral rules and what it seeks to do. It seeks to prevent anyone using a US person from using Offshore investments. So investments outside of the US basically get an advantage over a similar investment within the US. So, right. So to create a level playing field. So the first big one I think was in the 1960s when you had Subpart F rules, and then the next big one came in 1986. And President Reagan, which will be a whole range of tax reform, which includes the PFIC rules that you mentioned. And the most recent one is the end of 2017 on the president. Trump tasked in jobs at, so what, what are the PFIC rules? So what is a PFI in the first place? Right? So essentially it’s a non-US mutual fund. It’s, it’s defined in a lot of detail in section 1297, but basically, it’s. And when you set up a structure outside of the US, and, you can trigger PFIC status in one of two ways, either when more than 75% or more of your gross income is classified as passive.
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