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American Capital, Ltd. Message Board

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  • sfruehling1 sfruehling1 Feb 16, 2008 12:20 PM Flag

    ECAS Tax Issues

    Some people have responded and do not fully understand that a foreign company that is classified as a PFIC by the IRS is treated very differently than most foreign companies owned by US residents. My guess is that most Canroys are not treated as PFICs (they are nonfinancial & usually have a significant nonpassive component). I am not a tax expert, but ECAS’s prospectus and other readings I have found report US taxes on a PFIC are very complicated and onerous (see prospectus or do an internet search on PFIC). US taxes for PFICs were designed to discourage US residents from investing in them.

    I assume, however, if ECAS is held in an IRA (at least a ROTH IRA), its status as a PFIC (and onerous US taxes) then become irrelevant. I am still curious whether there are any foreign tax withholdings on ECAS. As far as I can tell, it is incorporated in Guernsey and Guernsey does not withhold taxes for foreign investors on most of its incorporated companies that operate mainly in other countries. Can anyone verify that there would be no foreign tax withholding on ECAS for a US resident?

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    • I received my first dividends from my ECAS shares (a co. primarily owned by ACAS) that I bought a couple of months ago and hold in an IRA. The dividend was approximately $.234/sh or $.15/sf in Euro $s. It appears nothing was withheld for taxes as ECAS reported their dividend to be $.15/sf in Euro $s.

      ECAS is currently selling at about 50% of its book value with about a 12% yield. ACAS is selling above book value (although, its book value likely is not dirctly comparable to ECAS due to different country accounting laws). I would think ECAS might have greater potential for growth than ACAS due to its smaller size, low price/book ratio, and as the European Mkt could be more robust and under served than the US market. I probably will buy a few more shares.

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