July 23, 1991
TO: FEDERAL LEGISLATION MEMBERS NO. 9-91
FEDERAL LEGISLATION COMMITTEE NO. 10-91
RE: INSTITUTE TESTIFIES ON INTERNATIONAL COMPETITIVENESS
__________________________________________________________
On July 17, the Institute testified before the House Ways
and Means Committee on factors affecting the ability of U.S.
mutual funds to compete in the international marketplace.
In its testimony, the Institute told the Committee that a
major barrier to the sale of U.S. funds abroad is U.S. tax law,
which puts U.S. funds at a significant competitive disadvantage
when a foreign investor decides whether to invest in a U.S. fund
or a foreign fund.
To remove the most serious competitive barriers, the
Institute recommended three changes to the U.S. tax treatment of
foreign investors. Specifically, the Institute proposed that
U.S. funds be permitted to flow through to their foreign
shareholders interest income and short-term capital gains. This
would enable U.S. funds to distribute interest income and short-
term capital gains to foreign investors free from withholding to
the same extent currently permitted for foreign funds.
In addition, the Institute proposed the creation of a
special new corporation called an International Regulated
Investment Company (IRIC). The IRIC would be a taxable
corporation which would invest only in shares of a single U.S.
mutual fund and would be sold only to foreign investors. The
IRIC would enable U.S. funds to compete more effectively with
foreign funds which are permitted to "build-up" or accumulate
their income and capital gains.
A copy of the Institute's testimony is attached. Please
call should you wish further information. We will keep you
informed of further developments.
- 2 -
This memo can also be found on FUNDS, the Institute's Fund
User Network and Delivery System, under Legislative Affairs,
Washington Update.
Julie Domenick
Vice-President
Legislative Affairs