Publicly Traded Partnerships (PTP)
Due to changes in U.S. tax regulations effective January 1st, 2023, sales proceeds from Publicly Traded Partnerships (PTPs) held by non-U.S. taxpayers may be subject to a 10% U.S. withholding tax, unless a Qualified Notice exemption applies.
As a result, access to such products via LYNX is limited. This measure is intended to protect investors who may not be fully aware of the potential tax and administrative implications of investing in PTPs. The withholding tax is levied by the U.S. Internal Revenue Service (IRS) and applies to certain transfers or redemptions of interests in PTPs classified as engaged in U.S. trade or business.
We strongly recommend that investors seek independent tax advice before investing in PTPs, as the tax treatment can vary depending on individual circumstances and may result in significant unexpected costs.
For more information, visit the IRS website:
Publicly Traded Partnerships | Internal Revenue Service
Definition: What is a Publicly Traded Partnership or a PTP?
A Publicly Traded Partnership (PTP) is a type of limited partnership in which the partnership interests, often referred to as units, are traded on an established securities exchange or are readily tradable on secondary markets. Unlike traditional private partnerships, PTPs offer a higher degree of liquidity due to this tradability.
In a typical PTP structure, the business is managed by one or more general partners, who may be individuals, corporations, or other entities. These general partners are responsible for the daily operations and decision-making within the partnership. Capital is provided by limited partners, who do not take part in the management of the business but participate in its financial returns.
Under current United States tax regulations, specifically those implemented by the Internal Revenue Service (IRS) as of January 1st, 2023, non-U.S. investors may be subject to a 10% withholding tax on gross proceeds from the sale or redemption of PTP interests. This tax applies unless the PTP has issued a so-called Qualified Notice. A Qualified Notice is a formal statement from the PTP issuer indicating that the partnership is not engaged in a U.S. trade or business for the period in question. When issued, the notice exempts the PTP from the withholding obligation, but it remains valid for a maximum of 92 days from the date of publication.
If a PTP has not published a valid Qualified Notice, the withholding tax will apply in full. Consequently, some financial institutions or platforms, including LYNX, may restrict access to certain PTP securities in order to mitigate unintended tax exposure for non-U.S. clients or prevent operational complexity.
Due to the potential financial and administrative implications, it is essential that investors assess whether a PTP investment suits their personal situation and tax status.
Disclaimer
This content is intended for informational purposes only and does not constitute legal, tax, or investment advice. Investors are strongly advised to consult a qualified tax advisor to assess the impact of U.S. withholding tax regulations on their personal situation and to understand any refund or reclaim options that may be available under applicable tax treaties.
U.S. withholding tax on PTP
All investors who are considered non-U.S. residents and do not file a W-9 form with the IRS (meaning they are not subject to standard U.S. taxation and reporting obligations) may be subject to a withholding tax of 10 percent on the gross proceeds from the sale or distribution of publicly traded partnerships (PTPs), unless the security is exempt through a valid Qualified Notice.
This withholding tax applies to the total transaction value, not merely the profit from the sale. In other words, 10 percent is withheld from the full amount that would otherwise be settled, regardless of whether the investor has realised a gain or a loss.
| For example, consider an investor buys 200 PTP units at USD 50 each, for a total investment of USD 10,000. Later, the investor sells the 200 units at USD 51 each, receiving USD 10,200. On paper, this is a profit of USD 200. However, if the PTP has not issued a Qualified Notice, the 10% withholding tax is applied to the entire sale proceeds (USD 10,200), not just the profit. This means USD 1,020 is withheld at source. Unless the investor qualifies for and successfully claims a refund, this leaves them with a net loss of USD 820, even though the trade appeared profitable before tax. |
It is important to note that options or other derivative instruments based on PTPs are not subject to the withholding tax, provided they are not physically settled. However, if such instruments are converted into the underlying PTP security and later sold, the standard withholding tax rules will apply to that subsequent sale.
Investors should be aware that the withholding is automatic and applied by the custodian or broker in accordance with IRS regulations. Tax implications may vary depending on the investor’s country of residence and any applicable double taxation treaties.
For more information about this new regulation, please refer to the IRS website below:
Partnership Withholding | Internal Revenue Service
How to activate trading on PTPs?
Login
- Open your browser and visit the Client Portal website
- Enter your username and your password
- Authenticate yourself via two-factor authentication
In the menu at the top right corner, select Welcome and then Settings.
PTP Trading Opt In-Out
To request permission for trading in Publicly Traded Partnership (PTP) securities, navigate to Settings and open the Account Settings section. Select the option labeled PTP Trading Opt In-Out to access the window titled Trading Permission Request for Publicly Traded Partnership Securities.
In this window, you can indicate whether you wish to opt in to PTP trading. To confirm your selection, you are required to enter your full name exactly as it appears next to the signature field. This is necessary for verification. Once completed, click Continue. A confirmation notification will appear to indicate that your request has been submitted.
List PTPs with Qualified Notice
PTP Securities with Qualified Notices can be found on the following link:
PTP Securities with known Qualified Notice
List PTPs without Qualified Notice
PTP Securities without Qualified Notices can be found on the following link:
PTP Securities without Qualified Notices
FAQ
When will my request to trade PTPs be processed?
Requests to trade in PTP securities are typically processed on the same business day, provided they are submitted before the applicable cut-off time. Processing times may vary depending on operational or regulatory factors.
What are the risks associated with investing in PTPs?
Investments in Publicly Traded Partnerships (PTPs) involve specific risks. These may include significant market volatility, exposure to fluctuations in commodity prices, especially in the case of energy-sector PTPs, and changes in tax laws or regulations that could affect the partnership’s income or distribution policy. Investors may also encounter limited liquidity and additional tax reporting obligations, depending on the structure of the partnership.
Why do I have to request to trade PTPs?
Publicly Traded Partnerships (PTPs) may be subject to significant U.S. IRS withholding tax and involve complex tax and legal considerations. To ensure that investors fully understand these risks, access to PTPs via LYNX is restricted and only available upon request.
Why did my PTP trading get restricted again?
Access to PTP trading is automatically restricted every 3 months. This recurring restriction is part of the account management process and may relate to regulatory or operational requirements. To restore access, follow the steps described above. You will need to re-confirm your consent before trading can resume.
Trading Options on PTPs
As previously indicated, a 10% withholding tax applies to transactions involving PTP securities. This tax is not limited to standard buy and sell orders but also applies when exercising options that result in the purchase or sale of 100 units. Investors trading options on PTPs are therefore subject to the same withholding tax as in regular transactions. It is important for investors to take this tax implication into account when planning their strategies, as it can affect their net investment returns.
Disclaimer:
LYNX does not provide tax or legal advice. The information on this page has been prepared for informational purposes only and is not intended to be tax or legal advice, and should not be relied upon. You are therefore solely responsible for correctly assessing whether the information on this page is applicable to you and correct. Despite the fact that LYNX takes all necessary care in drawing up and maintaining this page, using sources that are considered reliable, LYNX cannot guarantee the accuracy, completeness and actuality of the information provided. LYNX therefore refers to the instructions officially published by the IRS and strongly recommends consulting a tax or legal adviser before entering into any transaction. No rights can be derived from the information described on this page.
This page contains links and/or refers to third-party websites. These links are provided solely for your convenience. Such third-party websites are not under the control of LYNX. LYNX is therefore under no circumstances responsible for the information on such third-party websites.