US REITs for Foreign Investment: Understanding Advantages under FIRPTA Proposed Reforms LIVE Webcast

Speaker Firms and Organization:
Greenberg Traurig, LLP
Carl J. Riley
Shareholder
DLA Piper LLP
Robert J. Le Duc
Partner, Co-Chair, National REIT Tax Practice
Seyfarth Shaw LLP
John P. Napoli
Partner
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Presented By:
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Partner Firms:
March 17, 2014
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Greenberg Traurig, LLP (GT) is an international, multi-practice law firm with
approximately 1750 attorneys serving clients from 36 offices in the United
States, Latin America, Europe, the Middle East and Asia. GT is among the
Top 10 law firms on The National Law Journal's 2013 NLJ 350, an annual
ranking of the largest firms in the U.S.
GT provides integrated legal services for clients worldwide. It offers a
multidisciplinary team, including senior lawyers who have been the chief
legal officers at major multinational companies and have spent years solving
real-world problems in the business, political and legal environments of
major commercial centers. GT’s experience in more than 100 practice areas
and network of contacts throughout the world position the firm to help clients
achieve their objectives both domestically and in the global marketplace.
DLA Piper is a global law firm, with approximately 4,200 lawyers located in
more than 30 countries throughout the Americas, Asia Pacific, Europe and
the Middle East.

Partner Firms:
March 17, 2014
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Seyfarth Shaw LLP has more than 800 attorneys in the U.S., London,
Shanghai, Melbourne and Sydney, and provides a broad range of legal
services in the areas of corporate, real estate, labor and employment,
employee benefits, and litigation. The firm is a recognized leader in
delivering value and innovation for legal services, and its acclaimed
SeyfarthLean client service model has earned numerous accolades from a
variety of highly respected third parties, including industry associations,
consulting firms and media.
Seyfarth Shaw’s REIT practice is interdisciplinary, comprised of attorneys
with corporate, securities, real estate and tax law expertise who represent
public and private REITs as outside general counsel and in speciﬁc ﬁnance,
development, acquisition and disposition transaction, as well as advising on
reporting obligations under Sarbanes-Oxley and SEC filings. Attorneys in the
practice have comprehensive experience in all stages of REIT operations,
and represent every type of REIT including equity, mortgage, hybrid, special
purpose REITs, public and private REITs, and funds that invest in REITs.

Brief Speaker Bios:
Carl J. Riley
Carl J. Riley is a Shareholder in Greenberg Traurig's New York Office. Carl focuses his practice on complex tax matters, specializing
in real estate-related matters, including initial public offerings, formations and other securities issuances, with particular emphasis on
transactions involving REITs. He is experienced with tax rulings and treaties, administrative practice before taxing authorities, and the
Foreign Investment in Real Property Tax Act (FIRPTA). In addition, Carl advises clients regarding mergers and acquisitions, securities
offerings, and transactions involving regulated investment companies (RICs), partnerships, pension funds and other tax exempt
entities, and sovereign wealth funds. He is also experienced in the formation, diligencing, structuring and implementation of various
investments and acquisitions involving private equity funds. He received his J.D. and LL.M. from the New York University School of
Law.
March 17, 2014
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Robert J. Le Duc
Robert J. Le Duc concentrates his practice in federal and international income taxation. Mr. Le Duc also has extensive experience in
the real estate and mortgage-related areas, including representation of real estate funds, debt funds, and publicly traded and privately
owned equity and mortgage real estate investment trusts (REITs). He has structured dozens of debt and equity offerings, REIT
mergers and acquisitions, formations of private REITs, partnership roll-ups and various mortgage REIT transactions. In addition, Mr.
Le Duc has provided tax advice regarding numerous cross border real estate investments and cross border financing transactions,
with particular focus on advising non-US governmental investors.
Legal 500 names Mr. Le Duc for his REIT practice, calling him "extremely responsive."

Brief Speaker Bios:
John P. Napoli
John Napoli is co-managing partner of Seyfarth Shaw’s New York office, where he practices in the areas of federal, state and local
taxation and chairs the firm’s national Tax practice group. Mr. Napoli advises public and private clients on tax issues relating to
corporate mergers and acquisitions, restructurings, consolidations, financing, real estate (including REITs), tax free like kind 1031
exchanges, subchapter S corporations, partnerships, joint ventures, and limited liability companies. Mr. Napoli has been instrumental
in structuring numerous tax-efficient real estate transactions, including the formation, operation and liquidation of REITs and
UPREITs. He also represents clients before the Internal Revenue Service, United States Tax Court, and various state and local
authorities on a variety of controversy matters. Mr. Napoli has an AV rating in Martindale Hubbell, has been selected for inclusion in
Super Lawyers–NY Metro every year since 2006, and in 2011, was named to the NACD Directorship’s “Directorship 100” list of
“people to watch” in corporate America.
March 17, 2014
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► For more information about the speakers, you can visit: http://theknowledgegroup.org/event_name/us-reits-for-foreign-investment-understanding-advantages-under-firpta-proposed-reforms-live-webcast/

Real estate investment trusts (REITs) have long been considered to be tax-efficient vehicles for foreign
investments in U.S. real estate. Recently, the Obama administration and members of Congress have
issued various legislative proposals that encourage private infrastructure investment. These proposals
are intended to attract foreign capital to the U.S. real estate market by reducing existing tax barriers to
investment, primarily under the Foreign Investment in Real Property Tax Act of 1980 (commonly known
as FIRPTA).
Many (but not all) of these reforms could enhance the value of REITs as vehicles for foreign investment in
the United States. However, since REITs are subject to complex rules related to income, assets, share
ownership, and distribution of income, they can represent challenges to adopters and investors.
In this 2-hour live webcast, our panel of key thought leaders and practitioners will offer insight with
respect to the latest and significant issues surrounding foreign investment in U.S. real estate through
REITs.
March 17, 2014
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Featured Speakers:
March 17, 2014
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Carl J. Riley
Shareholder
Robert J. Le Duc
Partner, Co-Chair, National REIT Tax
Practice
DLA Piper LLP
John P. Napoli
Partner
Seyfarth Shaw LLP

Introduction
Carl J. Riley is a Shareholder in Greenberg Traurig's New York Office. Carl focuses his practice on complex tax matters,
specializing in real estate-related matters, including initial public offerings, formations and other securities issuances, with
particular emphasis on transactions involving REITs. He is experienced with tax rulings and treaties, administrative practice
before taxing authorities, and the Foreign Investment in Real Property Tax Act (FIRPTA). In addition, Carl advises clients
regarding mergers and acquisitions, securities offerings, and transactions involving regulated investment companies
(RICs), partnerships, pension funds and other tax exempt entities, and sovereign wealth funds. He is also experienced in
the formation, diligencing, structuring and implementation of various investments and acquisitions involving private equity
funds. He received his J.D. and LL.M. from the New York University School of Law.
March 17, 2014
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Corey Parker
Senior Consultant
Baker Tilly Virchow Krause, LLP
Carl J. Riley
Shareholder

Introduction
Robert J. Le Duc concentrates his practice in federal and international income taxation. Mr. Le Duc also has extensive
experience in the real estate and mortgage-related areas, including representation of real estate funds, debt funds, and
publicly traded and privately owned equity and mortgage real estate investment trusts (REITs). He has structured dozens of
debt and equity offerings, REIT mergers and acquisitions, formations of private REITs, partnership roll-ups and various
mortgage REIT transactions. In addition, Mr. Le Duc has provided tax advice regarding numerous cross border real estate
investments and cross border financing transactions, with particular focus on advising non-US governmental investors.
Legal 500 names Mr. Le Duc for his REIT practice, calling him "extremely responsive."
March 17, 2014
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Reshma Patel - Jackson
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

Introduction
John Napoli is co-managing partner of Seyfarth Shaw’s New York office, where he practices in the areas of federal, state
and local taxation and chairs the firm’s national Tax practice group. Mr. Napoli advises public and private clients on tax
issues relating to corporate mergers and acquisitions, restructurings, consolidations, financing, real estate (including
REITs), tax free like kind 1031 exchanges, subchapter S corporations, partnerships, joint ventures, and limited liability
companies. Mr. Napoli has been instrumental in structuring numerous tax-efficient real estate transactions, including the
formation, operation and liquidation of REITs and UPREITs. He also represents clients before the Internal Revenue
Service, United States Tax Court, and various state and local authorities on a variety of controversy matters. Mr. Napoli
has an AV rating in Martindale Hubbell, has been selected for inclusion in Super Lawyers–NY Metro every year since 2006,
and in 2011, was named to the NACD Directorship’s “Directorship 100” list of “people to watch” in corporate America.
March 17, 2014
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Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

Table of Contents
15
Roadmap 16
U.S. Source Income
•Foreign Investors 18
•Investment (“FDAP”) Income 19
•Business Income 20
•FDAP or ECI? 21
•Comparison of Income Categories 22
•Tax Treaties 23
•Taxation of Gains 24
Foreign Investments in U.S. Real Estate
•Gains from USRPIs 29
•What is a USRPI? 30
•What is a REIT? 31
•REIT Requirements 32
•Taxation of REIT Distributions 33
•FIRPTA Tax Triggers 34
•FIRPTA Exceptions 35
•Notice 2007-55 36
•Dividends for 5% or Less Exception 37
•Section 892 – Foreign Government Exceptions 38
•Requirements of Section 892 39
•Investment Vehicle Comparison 40
•Summary 41
Commonly Used Structures
•Base Case Real Estate Fund Structure 44
•Base Case REIT Structure 45
•Mini REIT Strategy 46
•Leveraged Blocker Structure 47
•Portfolio Interest Summary 48
Recent Legislative Proposals
•Obama Administration Proposal 51
•Real Estate Investment and Jobs Act of 2013 (REIJA) 52
•Senate Finance Committee Discussion Draft 54
•Camp Proposals 55
•Summary of the Various Proposals 57
Circular 230 Notice 58

Roadmap
• First, we’ll discuss general tax rules relating to non-U.S. persons with
U.S.-source income (slides 17-24)
• Then, we’ll turn to specific rules relating to foreign investments in U.S.
real estate, including the use of REITs (slides 28-41)
• We will then examine certain common structures that are used for foreign
investments in U.S. real estate (slides 42-48)
• Finally, we’ll look at recent tax reform proposals and how they would
impact these rules (slides 49-57)
March 17, 2014
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March 17, 2014
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U.S. Source IncomeU.S. Source Income
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

U.S. Source Income
• Non-U.S. persons – two types of income from U.S. sources, with different rules:
– Investment income
– Business income
• Categories are mutually exclusive
March 17, 2014
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Foreign InvestorsForeign Investors
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

U.S. Source Income
• Investment income:
– Interest, dividends, rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, and other “fixed or determinable annual or periodical” gains,
profits, and income (“FDAP”)
– Don’t be misled
• Certain interest, dividends and gains can be business income rather than investment
income
• Most rents, salaries and wages are considered to be business income rather than
investment income
March 17, 2014
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Investment (“FDAP”) IncomeInvestment (“FDAP”) Income
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

U.S. Source Income
• Business income:
– Income which is effectively connected with the conduct of a trade or business within the United
States (so-called “effectively connected income”, or “ECI”)
March 17, 2014
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Business IncomeBusiness Income
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

U.S. Source Income
• Although investment income (FDAP) and business income (ECI) are subject to different tax
treatment (as discussed below), it is not always easy to categorize a given item of income.
Examples:
– Rental income is generally business income
• However, income from property that is net leased may be investment income
– Interest income is often investment income
• However, interest received by a foreign person on loans that it originated may be business
income
March 17, 2014
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FDAP or ECI?FDAP or ECI?
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

U.S. Source Income
• So which is better – investment income or business income?
– Hint: it depends
• Comparison of Income Categories:
March 17, 2014
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Comparison of Income CategoriesComparison of Income Categories
Type of income
Maximum
tax rate
Is income
offset by
expenses?
Can treaties
reduce the tax
rate?
Must foreign
recipient file a
U.S. tax return?
Investment income
(FDAP)
30%;
0% on “portfolio
interest”*
No Yes No
Business income
(ECI)
35% (corporate)
39.6% (non-corporate)
Yes No** Yes
*Generally, interest paid to a foreign person who holds less than 10% of the voting stock of the payor.
**Most treaties raise the threshold of necessary connections to the US to make business income subject to US taxation. In the case
of real estate investments, this higher threshold will likely be met anyway.
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

U.S. Source Income
• U.S. tax treaties
– Where applicable, can lower the U.S. withholding tax rate on certain types of investment income
(e.g., interest and dividends)
– Can only help; can’t hurt
– Don’t help with gains from sale of U.S. real estate
– Generally don’t help with treatment of business income in the context of real estate investments
– “Limitation on benefits” provisions designed to combat “treaty shopping”
March 17, 2014
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Tax TreatiesTax Treaties
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

U.S. Source Income
• But how are GAINS treated?
– Most gains from sales of investment assets would be treated as investment income
• Example: foreign person holds Apple stock as an investment; sells it at a gain
– In general, this would be investment income and not business income
– However, better still, most gains on investment assets (intangible personal property)
are sourced to the seller’s jurisdiction – i.e., not treated as U.S. source income; no
U.S. tax
• BIG exception: gains from sale of interests in U.S. real estate
March 17, 2014
24
Taxation of GainsTaxation of Gains
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

May 30, 2013
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Foreign Investments in
U.S. Real Estate
Foreign Investments in
U.S. Real Estate
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

• Gains from the sale of U.S. real property interests (“USRPIs”)
– Pursuant to the Foreign Investment in Real Property Tax Act (“FIRPTA”), gains from sales of
USRPIs by foreign persons are taxed as U.S. source business income
March 17, 2014
29
Gains from USRPIsGains from USRPIs
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

• USRPIs subject to FIRPTA include:
– Buildings, land, leasehold interests, easements, options to acquire U.S. real estate, certain
mineral interests, etc.
– Interests other than solely as a creditor (e.g., loans with equity kickers such as shared
appreciation mortgages)
– Stock of U.S. real property holding corporations (“USRPHCs”)
• A USRPHC is a U.S. corporation, 50% or more of the assets of which consist of USRPIs
March 17, 2014
30
What is a USRPI?What is a USRPI?
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

• Use of Real Estate Investment Trusts (“REITs”) to hold U.S. real estate – what is a REIT?
– Creature of the tax law
– Special type of U.S. corporation – so it generally blocks receipt of business income by its
shareholders – that is focused on real estate
• Subject to various qualification requirements / tests
• Must distribute substantially all of its ordinary income each year (at least 90%)
• Allowed a tax deduction for dividends paid (so pays little or no income tax)
March 17, 2014
31
What is a REIT?What is a REIT?
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

• Key requirements for REIT qualification:
– Gross asset and income tests
• at least 75% must generally be real estate-related (e.g., rental real estate or mortgages),
and
• at least 95% of the income must be real estate-related and/or passive investment income
– Shareholder requirements
– Distribution requirements
– Generally can’t be considered a dealer (e.g., condo developer)
– Other requirements
March 17, 2014
32
REIT RequirementsREIT Requirements
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

• Tax treatment of distributions by REITs
– Dividends (e.g., attributable to rental income) generally treated by foreign investors as
investment income; not business income
– However, if a REIT has a capital gain (e.g., from selling U.S. real estate) and pays a dividend,
the character passes through to shareholders
• Good for U.S. individuals, because capital gain income is taxed at a lower rate than
dividend income paid by a REIT (20% max v. 39.6% max)
• Sucks for foreign investors because generally subject to FIRPTA (Boo!!!)
March 17, 2014
33
Taxation of REIT DistributionsTaxation of REIT Distributions
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

• So remind me again – how can FIRPTA tax arise (deemed business income)? Three ways:
– Foreign person sells interest in U.S. real estate
• Directly, or via a sale through a pass-through entity such as a partnership
– Foreign person sells stock of a USRPHC
– REIT sells U.S. real estate and pays a dividend to foreign person
March 17, 2014
34
FIRPTA Tax TriggersFIRPTA Tax Triggers
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

• Important exceptions – no FIRPTA tax on sale of corporate stock if:
– the corporation is a REIT that is “domestically controlled”
• Domestically controlled means less than 50% foreign ownership, directly and indirectly
• This exception is only available for a REIT (or a regulated investment company, or “RIC”
(i.e., a mutual fund)), but not for a regular taxable C corporation
– Also an exception if the class of stock (whether of a REIT or C corporation) is publicly traded,
and the foreign investor holds 5% or less of that class
March 17, 2014
35
FIRPTA ExceptionsFIRPTA Exceptions
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

• Notice 2007-55 provides for an unfortunate exception to this exception
– Normally, liquidating distributions or distributions in excess of earnings and profits are treated as
proceeds from the sale of the stock for tax purposes
• Therefore, such distributions from a domestically controlled REIT should be exempt from
FIRPTA
– But Notice 2007-55 says that these distributions are subject to FIRPTA
• Recent legislative proposals would repeal this rule
March 17, 2014
36
Notice 2007-55Notice 2007-55
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

• Where a REIT pays a dividend attributable to a sale of U.S. real estate, FIRPTA will also not
apply if the stock is publicly traded and the foreign recipient owns 5% or less
– In this case, the income is taxed as regular dividend investment income
• 30% statutory withholding tax rate
• Possibly lower if a treaty applies
March 17, 2014
37
Dividends for 5% or Less ExceptionDividends for 5% or Less Exception
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

• Foreign governments – special U.S. tax exemption under Section 892 for certain types of
income if requirements are met
• Types of income
– Interest and dividends generally exempt; also gains on sale of stock and bonds
– FIRPTA
• Exempt on sales of stock of a USRPHC
• However, not exempt if foreign sovereign sells U.S. real estate directly or through a
partnership, or if receives a FIRPTA dividend from a REIT (i.e., attributable to sale of U.S.
real estate by the REIT)
– Rental income – not exempt under Section 892
March 17, 2014
38
Section 892 – Foreign Government ExceptionsSection 892 – Foreign Government Exceptions
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

• Key requirements for exemption for foreign sovereigns under Section 892:
– Limited to certain types of income (see prior slide)
– Income is either:
• Not attributable to “commercial activity” (not precisely defined, but generally similar to the
concept of business income as discussed above), or
• If attributable to commercial activity (e.g., most rents), it is done through a blocker entity
(REIT or C corporation) that is not “controlled” by the foreign sovereign
– Standard for “control” is 50% or more of vote or value, or other “effective control”
(e.g., certain contractual governance rights might create effective control and
preclude reliance on 892)
March 17, 2014
39
Requirements of Section 892Requirements of Section 892
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

March 17, 2014
40
• Comparison of Investment Vehicles:
Partnership REIT C Corporation
Entity level
income tax?
No
Generally no (if all
income is
distributed)
Yes
Does it block the
flow-through of
business income
(ECI)?
No
Generally yes
(except FIRPTA in
certain cases)
Yes
State taxes for
investor (filing
and payment
obligations)?
Generally yes No No
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

• Recap of certain approaches to reduce U.S. tax:
– Treaty (lowers the tax rate of withholding tax on investment income where qualify for benefits)
– Use of a REIT as a blocker entity (i.e., generally blocks recognition by foreign shareholders of
taxable business income) while incurring little or no entity-level tax
– Certain gains are not U.S. source and therefore not taxable (e.g., stocks and bonds generally;
also straight mortgage loans; but not real estate)
– No FIRPTA tax if sell corporate stock:
• of domestically-controlled REIT (or RIC), or
• of public company where own 5% or less
– Foreign sovereigns exempt under Section 892 on certain types of investment income where
requirements are satisfied
– Corporate blocker entity pays deductible interest to foreign investors that is exempt as portfolio
interest (described below)
March 17, 2014
41
SummarySummary
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

March 17, 2014
42
Commonly Used StructuresCommonly Used Structures
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

Now that we’ve digested all the relevant rules, the following slides show some typical investment
structures
March 17, 2014
43
Typical Investment StructuresTypical Investment Structures
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

March 17, 2014
44
Base Case Real Estate Fund StructureBase Case Real Estate Fund Structure
• Flexible private fund structure:
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

March 17, 2014
45
Base Case REIT StructureBase Case REIT Structure
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

March 17, 2014
46
Mini REIT StrategyMini REIT Strategy
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

March 17, 2014
47
Leveraged Blocker StructureLeveraged Blocker Structure
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

• Portfolio interest – where properly executed, enables corporate payor to deduct interest,
which is exempt from tax by foreign recipient
• Key requirements:
– Foreign shareholder holds less than 10% of the payor’s voting stock
– Debt instrument must be in “registered form” (not bearer paper)
– Not applicable to contingent interest
• Certain constraints on deductibility of interest
– Interest stripping rules in Section 163(j) if too highly leveraged
– Applicable high yield discount obligations (“AHYDO”) that fail certain tests
March 17, 2014
48
Portfolio Interest SummaryPortfolio Interest Summary
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

March 17, 2014
49
Recent Legislative
Proposals
Recent Legislative
Proposals
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

• Obama Administration Proposal
– Released March 2013
• Real Estate Investment and Jobs Act of 2013
– Senate version (S. 1181) introduced June 18, 2013
– House version (H.R. 2870) introduced July 31, 2013
• Senate Finance Committee Discussion Draft
– Released by Sen. Max Baucus on November 19, 2013
• Tax Reform Act of 2014
– Released by David Camp, Chairman of the House Ways and Means on February 26, 2014 (the
“Camp Proposals”)
March 17, 2014
50
Recent Legislative Proposals at a
Glance
Recent Legislative Proposals at a
Glance
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

• Under current law, gain of a U.S. tax-exempt pension fund from the disposition of U.S. real estate
generally is exempt from U.S. tax (subject to certain UBTI rules), but gain of a foreign pension fund
from U.S. real estate is generally taxable under FIRPTA
• The Obama Administration has proposed exempting gains that a foreign pension fund derives from
the disposition of U.S. real estate from FIRPTA rules
– A “foreign pension fund” would be defined as a trust, corporation, or other organization or
arrangement that is organized or created outside of the United States and that is generally
exempt from income tax in its home jurisdiction
– The foreign pension fund must generally be engaged in administering or providing pension or
retirement benefits
March 17, 2014
51
Obama Administration Proposal –
Released March 2013
Obama Administration Proposal –
Released March 2013
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

The following proposals are in the two REIJA bills:
•Expand the FIRPTA exemptions for publicly traded REITs from the existing threshold of 5% (see slides
35 and 37) to 10%
•Legislative repeal of Notice 2007-55 (see slide 36)
•Assumption that small (i.e. <5%) shareholders of a publicly traded REIT are U.S. persons (absent actual
knowledge to the contrary); stock of a REIT held by a second REIT would be presumed to be held by a
foreign shareholder unless the second REIT is itself domestically controlled
March 17, 2014
52
Real Estate Investment and
Jobs Act of 2013 (REIJA)
Jobs Act of 2013 (REIJA)
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

• Exempt from FIRPTA stock of public and private REITs held by certain “qualified shareholders” –
namely publicly traded (with certain record requirements) “qualified collective investment vehicles” in
treaty jurisdictions
– A “qualified collective investment vehicle” is an entity that:
• qualifies for a reduced rate of withholding on ordinary REIT dividends even though the
entity holds more than 10% of the stock of the REIT;
• is a taxable corporation, primarily engaged in an active real estate trade or business; OR
• is designated as such by the Department of the Treasury (and is either fiscally transparent
or entitled to something akin to a “dividends paid deduction” (similar to that of a U.S.
REIT))
March 17, 2014
53
Jobs Act of 2013 (REIJA) (cont’d)
Jobs Act of 2013 (REIJA) (cont’d)
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

The Senate Finance Committee Discussion Draft contained the following proposals:
•Restrict definition of “domestically controlled REIT”
•Exempt foreign pension plans from FIRPTA
•Expand the FIRPTA exemptions for publicly traded REITs from the existing threshold of 5% to 10%
•Legislative repeal of Notice 2007-55
•Dividends received from foreign corporations attributable to dividends from REITs not treated as U.S.-
source dividends eligible for the dividends received deduction under Section 245
March 17, 2014
54
Senate Finance Committee Discussion DraftSenate Finance Committee Discussion Draft
Corey Parker
Senior Consultant
Carl J. Riley
Shareholder

The Camp proposals contains several changes to the REIT rules unrelated to FIRPTA:
•For purposes of the REIT asset and income tests, only assets with useful lives of at least 27.5 years
would qualify as real estate assets
•Rents and interest would not include amounts based on percentages of receipts or sales where (i) the
tenant is a C corporation and (ii) the amounts received from this tenant constitute more than 25% of the
total amounts based on percentages of receipts or sales
•REITs that have to distribute C corporation E&P would have to do so in cash
•Reversion of Taxable REIT Subsidiary securities limit to 20%
•Immediate tax on unrealized gain upon the conversion or transfer of C corporation built-in gain asset to a
REIT or the acquisition of property by a REIT from a C corporation in an otherwise tax-free transaction
•Prevent REITs from being a party to a tax-free spin-off transaction
March 17, 2014
55
Camp ProposalsCamp Proposals
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

The following is Camp’s proposal relating to FIRPTA:
•Interests in certain REITs not excluded from the definition of U.S. real property interests
– Under current law, any USRPHC that disposes of all its US real property in taxable dispositions
ceases to be treated as a USRPHC
– Under the proposal, this beneficial rule would not apply to REITs – i.e., if a REIT sells all its US
real property, it still has the status as a USRPHC for a five year period
March 17, 2014
56
Camp Proposals (cont’d)Camp Proposals (cont’d)
Manager
Robert J. Le Duc
Practice
DLA Piper LLP

* The Camp proposals contain a number of additional points including the following: certain short-life property not treated as real property for
purposes of REIT provisions; limitation on fixed percentage rent and interest exceptions for REIT income tests; non-REIT earnings and profits
required to be distributed by REIT in cash; and interests in certain REITs not excluded from definition of United States real property interests
March 17, 2014
57
Manager
John P. Napoli
Partner
Seyfarth Shaw LLP

In compliance with U.S. Treasury Regulations, please be advised that any tax advice given herein (or in
any attachment) was not intended or written to be used, and cannot be used, for the purpose of (i)
avoiding tax penalties or (ii) promoting, marketing or recommending to another person any transaction or
matter addressed herein.
March 17, 2014
58
Circular 230 NoticeCircular 230 Notice

► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type
your question in the box that appears and click send.
► Questions will be answered in the order they are received.
Q&A:
March 17, 2014
59
Carl J. Riley
Shareholder
Robert J. Le Duc
Practice
DLA Piper LLP
John P. Napoli
Partner
Seyfarth Shaw LLP

May 30, 2013
60
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