Treatment of Indian Mutual Funds for USA Citizens/Residents Subject to PFIC Rules
Kunj Sheth
Principal CPA, Sheth Tax Inc, USA
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http://doi.org/10.37648/ijps.v20i01.022
Abstract
For the purpose of determining the PFIC Income Test, all of the gross income that the Tested Foreign Corporation has earned during the taxable year is taken into consideration. PFIC Asset Test is calculated by taking into consideration the average quarterly value of the assets of the Tested Foreign Corporation, as measured on the final date of each quarter of the corporation's taxable year. This value is then used to establish the tax liability of the corporation. A Tested Foreign Corporation, on the other hand, may be required or permitted, depending on the circumstances, to use the adjusted basis of its assets rather than their fair market value for the purposes of the PFIC Asset Test. This is one of the different ways in which the PFIC laws might be applied. In order to fulfill the requirements of the PFIC Asset Test, liabilities are not taken into consideration. This results in the PFIC Tests being applied on a gross basis, which is a characteristic that results in a variety of technical challenges when it comes to the implementation of the look-through criteria. In addition, the United States tax law does not consider them to be "look-through" transparent organizations. Any taxpayer in the United States who has Indian mutual funds, whether they are equity, debt, hybrid, or ELSS, is required to comply with the PFIC requirements.
Keywords:
Treatment; Indian; mutual funds; PFIC rules; residents.
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