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Delay in release of final changes to US tax rules: Manulife US Reit

THE release of final changes to US tax regulations that could potentially impact Singapore-listed US real estate investment trusts (Reits) has been delayed, said Manulife US Reit on Tuesday.

The United States Department of the Treasury had issued proposed regulations under Section 267A in December last year, while stating that it expected to release final regulations by June 22, 2019. However, final rules have yet to be released and the Treasury Department has not provided an updated timeline on when it expects to do so.

The Business Times understands the delay was caused by backlog arising from the US federal government shutdown and other priorities.

Manulife US Reit said that the delay does not signal that there will be any meaningful changes from the proposed 267A regulations.

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Both Manulife US Reit and Keppel-KBS US Reit had said on Dec 27 that they expect the proposed US regulations - as well as upcoming tax changes in Barbados where both Reits have entities - to not have any material impact on their respective consolidated net tangible assets or distribution per unit.

Prior to the release of the proposed rules, analysts had expressed concerns that changes to tax regulations would make Manulife US Reit unable to claim a tax deduction on interest expenses paid to its entities in Barbados. This scenario would have occurred if Manulife US Reit's Barbados entities, used to repatriate cash to Singapore, are considered hybrid entities.

But US tax authorities have proposed to narrow its focus to specific, limited kinds of hybrid entities, which will not apply to the specific tax structure of the Barbados entities. This means that they would still benefit from the shareholder loan tax shield, should the proposed regulation be passed.

Manulife US Reit units ended up 0.5 US cent or 0.58 per cent at US$0.87 on Tuesday.