US Tax Treatment of French SCPI

SCPI units are long-term investment vehicles. By investing in an SCPI, the subscriber is exposed to the specific risk associated with owning real estate assets. The main purpose behind the SCPI is to allow taxpayers to invest in private companies that specialize in acquiring and overseeing real estate investments. This is similar to a REIT in the sense that there are investments involving real estate, which are designed to generate passive income — and the individual does not own the actual real estate — but instead has a stake in the investment. One key distinction though, is that it is not technically a fund.

An investment in one SCPI is equivalent to an investment in a US REIT.  One of the most common types of investments in France is the SCPI (Société Civile de Placement Immobilier). While this type of investment closely mimics a REIT (Real Estate Investment Trust), there are some distinctions which are important.

An investment in a US REIT is not an investment in a mutual fund. and is not an investment in a PFIC. Examples of US REITs: Simon Property Group (NYSE: SPG) or Vornado (NYSE: VNO).  These are investments in a single stock or company.

However, it is possible it be invested in a mutual fund that owns a collection of SCPI or REITS, in which case it might be a PFIC. The US example is VNQ, which is Vanguard’s ETF for REITs.  It does not hold just one REIT.  Rather, it holds several hundred REITs.

If you have invested in a fund that holds a collection of SCPI, then this may be a PFIC

The capital invested cannot benefit from any guarantee or protection. Past performance relating to share values and income distributions is not a reliable indicator of future performance. As this investment is invested exclusively in real estate, it is considered not very “liquid”. The transfer conditions may vary depending on the evolution of the real estate market. The procedures for withdrawing or selling SCPI shares are linked to the existence or not of a counterparty. As a result, the management company cannot guarantee the redemption of units.