Situation:
We have an investment in foreign company, which core activity is money transfer (like Western Union).
Company has more than 50% of its assets in form of bank deposits (mostly available "at-will" and thus providing very low interest income – significantly lower than average interest rate in location country).
However, main purpose to keep large amount of cash and deposits – to be able to satisfy clients requests. Company received 90% of income from transferring activity and less than 10% - from interest.
In such situation, can we classify deposits as providing non-passive income for the purposes of Private Foreign Investment Company legislation?
Or we should classify company as PFIC ?
Code section 1297(a) defines a PFIC as any foreign corporation if either: (1) at least 75
percent of the corporation's income for the taxable year is passive income; or (2) the
average percentage of assets held by the corporation during the taxable year that
produce, or are held for the production of, passive income is at least 50 percent.
Code section 1297(b) defines passive income for purposes of the PFIC income test as
income which is of a kind which would be foreign personal holding company income as
defined in Code section 954(c), subject to certain exceptions.
We have an investment in foreign company, which core activity is money transfer (like Western Union).
Company has more than 50% of its assets in form of bank deposits (mostly available "at-will" and thus providing very low interest income – significantly lower than average interest rate in location country).
However, main purpose to keep large amount of cash and deposits – to be able to satisfy clients requests. Company received 90% of income from transferring activity and less than 10% - from interest.
In such situation, can we classify deposits as providing non-passive income for the purposes of Private Foreign Investment Company legislation?
Or we should classify company as PFIC ?
Code section 1297(a) defines a PFIC as any foreign corporation if either: (1) at least 75
percent of the corporation's income for the taxable year is passive income; or (2) the
average percentage of assets held by the corporation during the taxable year that
produce, or are held for the production of, passive income is at least 50 percent.
Code section 1297(b) defines passive income for purposes of the PFIC income test as
income which is of a kind which would be foreign personal holding company income as
defined in Code section 954(c), subject to certain exceptions.
