New Proposed Regulations for Withholding on Transfers of Certain Partnership Interests

New Proposed Regulations for Withholding on Transfers of Certain Partnership Interests

By Simon Lee

June 2019

On May 7, 2019, the U.S. Treasury Department (Treasury) and the U.S. Internal Revenue Service (IRS) issued proposed regulations with guidance on how to apply withholding tax under U.S. Internal Revenue Code (IRC) Section 1446(f) on a transfer by a non-U.S. person of an interest in a partnership that carries on a trade or business in the U.S. or otherwise realizes income effectively connected with such a trade or business (ECI). These proposed regulations are potentially relevant to any non-U.S. investor in such a partnership.

Partners in publicly traded partnerships (PTPs) would most likely hold their interests through nominees such as brokers and custodians. The proposed regulations would require a tax equal to 10 per cent of the gross proceeds on any transfer of interest in such a PTP by a non-U.S. person to be withheld. Here, a transfer involves a sale, exchange, or other isposition of interest in a partnership. he seller broker that receives the gross roceeds from the transfer and acts on behalf of such a transferor would be required to withhold the tax.

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