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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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United States | Publication | May 2023
An Internal Revenue Service notice released on May 10, 2023, raises a cap on the ability of the Texas Permanent School Fund (PSF) to guarantee tax-exempt bonds of school districts and charter schools. PSF guarantees enable schools to finance construction and renovation projects at reduced borrowing costs.
Existing Treasury regulations allow the PSF to guarantee bonds without regard to federal arbitrage restrictions if, among other things, the total amount of bonds guaranteed by the PSF does not exceed 500 percent of the book value of the PSF's assets as of December 16, 2009.
In Notice 2023-39, the IRS announced that it intends to amend the regulations to remove the reference to December 16, 2009. The IRS said the notice may be relied upon for bonds sold on or after May 10, 2023, and before the applicability date of any future guidance.
Accordingly, for bonds sold on or after May 10, 2023, the federal limit on the amount of tax-exempt bonds the PSF is authorized to guarantee (taking into account the bonds to be sold and all other outstanding bonds guaranteed by the PSF) is 500 percent of the book value of the PSF's assets as of the sale date of the bonds.
Prior to the release of Notice 2023-39, the PSF had nearly reached its federal limit of 500 percent of the book value of its assets as of December 16, 2009, or US$117.3 billion.
The PSF is also subject to a state law limit on the amount of bonds it can guarantee. As of March 31, 2023, the state limit was US$152.5 billion, or 3.5 times the book value of the PSF's assets as of that date.
Thus, as of March 31, 2023, the federal limit of US$117.3 billion, rather than the state limit of US$152.5 billion, was the effective cap on the PSF guarantee program.
By comparison, if the formula announced in Notice 2023-39 had applied on March 31, 2023, the federal limit for that date would have been US$217.9 billion (500 percent of the book value of the PSF's assets as of that date), so the state limit rather than the federal limit would have been the effective cap.
The State Board of Education has the authority to increase the state capacity multiplier from 3.5 to 5 times the cost value of the PSF's assets. If the SBOE were to exercise that authority, the state limit would match up with the new federal limit.
The IRS is requesting comments on Notice 2023-39 by July 31, 2023.
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