On March 29, the Obama Administration issued a press release outlining its plan to encourage private investment in infrastructure. As part of its 2014 Budget, foreign pension plans would be exempted from U.S. tax on gain from the disposition of U.S. real property interests, including both infrastructure and other U.S. real estate assets. Some foreign pension plans, including those organized in Canada, are formed by foreign governments or serve mainly governmental employees.
Under current law, such governmental plans may qualify for exemption from U.S. Federal income tax on gains from the disposition of non-controlling interests in U.S. corporations that hold predominately U.S. real estate assets, including certain infrastructure assets. Practitioners had questioned whether this proposal would apply to these governmental pension plans as well as private pension plans. A government official recently clarified publicly that the exemption would be intended to apply to all foreign pension plans, both private and governmental, and that this point will be clarified as the proposal moves forward. Also uncertain is whether the proposal would expand the current governmental-plan exemption to cover controlling interests in U.S. real estate holding corporations. We expect the extent of the proposed exemption to be clarified as well.