Overview of Check-the-Box Rules
Under US federal income tax law, an entity is classified as either a corporation (opaque), a partnership (transparent), a disregarded entity (transparent) or a trust. A non-US entity’s default classification for US tax purposes will depend on whether the entity is a “per se” corporation versus an “eligible entity” and, in the case of an eligible entity, whether at least of the entity’s owners has unlimited liability under local law.
Per Se Corporations
Certain types of non-US entities are identified in the US Treasury Regulations as being corporations that may not elect a different classification. These “per se” corporations include, for example, a Societe Anomyme (SA) in France or Luxembourg, an Aktiengesellschaft (AG) in Germany, and a Public Limited Company (PLC) in the United Kingdom or Ireland. The full list of per se corporations is available in US Treasury Regulations Section 301.7701-2(b)(8).
Eligible Entities
If a non-US entity is not a per se corporation, then it is considered an “eligible” entity and may elect a US tax classification that differs from its default classification. An eligible entity in which at least one owner has unlimited liability under local law (e.g., a general partner of a limited partnership) will, by default, be treated as a partnership for US tax purposes unless it affirmatively elects to be treated as a corporation. Such entities include, for example:
- Société de Libre Partenariat (SLP) in France;
- Simple Limited Partnership (Société en Commandite Simple, or SCS) in Luxembourg;
- Special Limited Partnership (Société en Commandite Spéciale, or SCSp) in Luxembourg;
- Corporate Partnership Limited by Shares (Société en Commandite par Actions, or SCA) in Luxembourg;
- Limited Partnership in England or Scotland;
- Limited Partnership (Kommanditgesellschaft, or KG) in Germany; and
- Limited Liability Company & Limited Partnership (Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft, or GmbH & Co. KG) in Germany
An eligible entity in which no owner has unlimited liability will, be default, be treated as a corporation for US tax purposes unless it makes an affirmative election to be treated as either a partnership (if it has two or more owners) or disregarded (if it has only one owner). Such entities include, for example:
- Société à Responsibilité Limitée (SARL) in France or Luxembourg;
- Societé par Actions Simplifieé (SAS) in France;
- Fonds Commun de Placement (FCP) in France or Luxembourg;
- Irish Collective Asset-management Vehicle (ICAV); and
- Special Purpose Vehicle (SPV) in Ireland organized as a Private Company Limited by Shares (LTD) or Designated Activity Company (DAC)
Read this article in full:
Bird Tax Law Newsletter August 2024_Entity Classification Considerations for Non-US Funds
About Bird Tax Law
Chris has been practicing tax law for over 15 years, with much of that time at AM Law 100 firms. His practice encompasses investment funds, M&A and executive compensation. As part of his investment fund practice, Chris advises non-US fund sponsors and investors on the US tax aspects of fund formations and secondary transactions.