During the 15th Annual Effective Hedge Fund Tax Practices seminar sponsored by Financial Research Associates and the Hedge Fund Business Operations Association, tax experts at two separate sessions addressed the taxation of foreign investments, including withholding at the source, rules regarding controlled foreign corporations and issues concerning the taxation of distressed debt investments. This article, our third in a four-part series covering the seminar, summarizes salient points from those two sessions. Panelists for the “Working Through Tax Implications of Foreign Investments” session included, among others, Len Lipton, a managing director at GlobeTax Services and Philip S. Gross, a partner at Kleinberg, Kaplan, Wolff & Cohen, P.C. The session entitled “Tax Considerations for Distressed Debt Transactions” was presented by David C. Garlock, Director of Financial Services at Ernst & Young LLP. The first installment in this series covered three sessions addressing the contribution and distribution of property to fund investors, the allocation of investment gains and losses to fund investors and the preparation of Forms K-1. See “Hedge Fund Tax Experts Discuss Allocations of Gains and Losses, Contributions to and Distributions of Property from a Fund, Expense Pass-Throughs and K-1 Preparation at FRA/HFBOA Seminar (Part One of Four)
,” Hedge Fund Law Report, Vol. 7, No. 2 (Jan. 16, 2014). The second installment discussed issues impacting foreign investors in foreign funds, including basics of withholding with respect to fixed or determinable annual or periodic gains, profits or income (FDAPI); the portfolio interest exemption from FDAPI withholding; the pitfalls of effectively connected income (ECI) for offshore hedge funds; and the sources of ECI. See “Tax Experts Discuss Provisions Impacting Foreign Investors in Foreign Hedge Funds During FRA/HFBOA Seminar (Part Two of Four)
,” Hedge Fund Law Report, Vol. 7, No. 3 (Jan. 23, 2014).