WITHHOLDING TAX NOT APPLICABLE FOR UNITHOLDERS AND BROKERS ARISING FROM SECTION 1446(F) AND SECTION 1446(A) OF UNITED STATES ("US") INTERNAL REVENUE CODE
Prime US REIT ("PRIME") formally certifies, through its Qualified Notice, that the withholding tax exception under Treas. Reg. 1.1446(f)-4(b)(3)(ii)(A) applies to PRIME.
Prime US REIT Management Pte. Ltd., as manager of PRIME (the "Manager"), wishes to announce that unitholders of PRIME are not subject to withholding tax pursuant to Section 1446(f) of the US Internal Revenue Code (“Code”) as PRIME does not operate in a manner that will cause it to be treated as engaging in a US trade or business. Accordingly, brokers that effect a transfer of Units are also not required to withhold a tax equal to 10% of the amount realised pursuant to Section 1446(f) of the Code.
Section 1446(f) of the Code provides that if a non-US person transfers an interest in a partnership and if any portion of the gain on such transfer is effectively connected with the conduct of a US trade or business, the transferee must withhold 10% of the amount realised upon the transfer or sale. Under the final regulations of Section 1446(f), brokers that effect a transfer of an interest in publicly traded partnership (“PTP”) on behalf of a non-US person and pay the amount realised to a non-US transferor that is their customer must generally withhold a tax equal to 10% of the amount realised. The applicability date of the new withholding tax is 1 January 2023.
PRIME has for US federal income tax purposes elected to be treated as a partnership and, by default, is a PTP. However, withholding tax under Section 1446(f) should not be applicable to the transfers by Unitholders because PRIME has and intends to continue to operate in a manner that will not cause it to be treated as engaging in a US trade or business.
The Manager intends to issue a qualified notice (“Qualified Notice”) on a quarterly basis to formally state that PRIME is not engaged in a trade or business within the United States at any time during its taxable year through the “PTP designated date” within the meaning of the Final Regulations.
Accordingly, and to reiterate, the Section 1446(f) Withholding Tax is not applicable to transfers by Unitholders. Additionally, brokers that effect a transfer of units in PRIME are also not required to withhold the Section 1446(f) Withholding Tax. Unitholders should not be required to file a US federal income tax return or apply for a US tax identification number solely as a result of the Section 1446(f) Withholding Tax.
Additionally, Section 1446(a) of the Code provides that a non-US partner in a partnership, including a PTP, is subject to Section 1446 withholding tax on allocations of income effectively connected with a US trade or business. Further, the regulations of Section 1446(a) stipulate that a PTP that has effectively connected gross income, gain or loss must pay withholding tax by withholding from distributions to a non-US partner. Additionally, nominees who hold an interest in a PTP must withhold, as appropriate, on distributions paid to any non-US persons (or to the accounts of any non-US persons) of which the nominee is treated as the withholding agent. A nominee that receives a qualified notice that meets the requirements of Treas. Reg. 1.1446-4(b)(4) must withhold on the amounts specified on the qualified notice.
PRIME has issued qualified notices detailing the information necessary to appropriately withhold. As supported by the information detailed on the qualified notice, nominees should not be required to withhold under Section 1446(a) on distributions received from PRIME, as no portion of the distributions payable are attributable to income that is effectively connected with a US trade or business.
In this regard, PRIME will provide qualified notices on its website reflecting it is not engaged in a US trade or business.