PFIC Statement services

As a (U.S.) investor in a company classified as a Passive Foreign Investment Company (PFIC), you have an obligation to submit a PFIC statement. TMF Group can prepare this statement for investors, making sure that your PFIC statement is accurate and according to the latest tax requirements.

What is a PFIC

From a US perspective, a PFIC is a foreign-based company that meets one of the following two criteria:

  • Income test
    At least 75% of the company’s gross income is “passive”, i.e. income derived from investments rather than from a company’s regular business operations.
  • Asset test
    At least 50% of the company’s assets consist of investments producing income as earned interest, dividends or capital gains.

Treatment of PFICs

Under the US tax laws, PFICs can be treated as:

  1. A Qualified Electing Fund (QEF). A QEF is almost a mimic of a U.S. mutual fund, and investors include in their income their share of the ordinary earnings and net capital gains of the PFIC
  2. Mark to market. With this option, the shareholder elects each year to recognize gain or loss on the value of the shares as if they had been sold at fair market value. 
  3. Tax and interest. Finally, this option applies the top tax rate.

Selecting the wrong treatment can cost significantly more in taxes and interest. Options range from almost punitive to similar to the tax treatment of US mutual funds.

Meet tax reporting deadlines

When investing in a PFIC, each tax year, a PFIC statement must be filed with the IRS. TMF Group, in close cooperation with a U.S.-based tax advisor, has the framework in place to prepare your PFIC statement in a short and efficient time frame. This will allow you to meet your tax reporting deadlines with a minimum of hassle.

We analyze all income including the so-called phantom income of a PFIC which needs to be reported to the IRS under the QEF election. In accordance with US tax regulations we can derive the phantom income by calculating the relevant income items as stated below:

  • Gains and losses
  • Amortisation
  • Accrued income
  • Interest Income deferred to Note Principal Payment

Unrivaled knowledge and experience

We specialise in accounting for CLO/CDO transactions. TMF Group played a pioneering role in managing the first wave of securitization structures in the US in the 1970s and then in Europe in the 1990s. TMF Group was engaged in managing the first European CDO transactions in 1999 and the first major European synthetic CDO transaction in 2002.

Currently, TMF Group administers around 250 CLO/CDO structures and actively works with the majority of Investment Managers, Collateral Administrators, Trustees and Arrangers. As Corporate Service Provider and Director of these transactions, we have in-depth knowledge about the investments and related transactions required to efficiently and consistently prepare your PFIC statements. Our services include:

  • Retrieving of relevant data - cash flow data and monthly reports from the Trustee
  • Liaising with the Investment Manager where needed
  • Running the data through our proprietary, proven and state-of-the-art software system to produce a balance sheet as well as a profit and loss statement for US tax reporting purposes
  • Preparing the PFIC statement and the related tax forms such as Form 5471

Interested in our PFIC Statement Services or have any questions? Please fill in our ‘Make an enquiry' form today, with details of your PFIC request and we’ll get in touch.

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