September 27, 1991
TO: BOARD OF GOVERNORS NO. 77-91
RE: BILL INTRODUCED TO ENHANCE INTERNATIONAL COMPETITIVENESS OF
U.S. MUTUAL FUNDS
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I am pleased to inform you that Senator Max Baucus,
Chairman of the Senate Finance Subcommittee on International
Trade, has introduced S. 1748, the "International Competitiveness
Act of 1991", legislation designed to enhance the international
competitiveness of U.S. mutual funds. Attached is Senator
Baucus' Record statement upon introduction of the bill, which
includes the bill's text and a description of its provisions.
As you know, current provisions of U.S. tax law create
substantial barriers to the sale of U.S. mutual funds abroad.
These barriers provide tax incentives for foreign investors to
prefer foreign funds over U.S. funds. S. 1748 would remove the
competitive tax disadvantages currently faced by U.S. funds
selling abroad by modifying the current withholding and
distribution requirements applicable to foreign investors in U.S.
funds.
In particular, S. 1748 would permit U.S. funds to flow
through to their foreign shareholders the character of interest
income and short-term capital gains, which would eliminate these
distributions from U.S. withholding tax. In addition, the bill
would permit creation of a special corporation called an IRIC or
International Regulated Investment Company, which could invest
only in the shares of a single U.S. mutual fund and could be sold
only to foreign investors. Through the use of the IRIC, which
would not be required to distribute income annually, U.S. funds
could compete more effectively with foreign funds which are
permitted to "build-up" or accumulate their income and gains.
Foreign investors would be exempt from U.S. estate tax on
their IRIC shares. In addition, a proportionate exemption would
apply to a foreigner's investment in a U.S. bond fund.
The Institute will keep you informed of developments
regarding this important legislation.
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I am personally gratified to have been able to see the
introduction of this long-needed proposal as my last legislative
endeavor.
David Silver
Attachment