On April 12, 2012, the IRS announced that the U.S. and Germany have entered into an agreement not to tax income or dividends from investments made by certain U.S. or German pension funds. Of particular interest is that favorable tax treatment will apply to dividends received from a group trust established pursuant to IRS Revenue Ruling 81-100.
The agreement references group trusts that are “established in the United States” and the treaty between the U.S. and Germany defines the U.S. to exclude Puerto Rico. This infers that, to obtain treaty benefits, the U.S. group trust cannot allow plans that are tax-qualified only in Puerto Rick to participate. Whether the interaction of the language of the agreement and the existing treaty definition reflects a concious decision by Treasury is unclear.
If you have any questions regarding the application of the treaty agreement, or any other employee benefits matter, please feel free to contact us.