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July 23, 1992
TO: BOARD OF GOVERNORS NO. 47-92
TAX MEMBERS NO. 46-92
INTERNATIONAL MEMBERS NO. 17-92
RE: INSTITUTE TESTIFIES ON INTERNATIONAL COMPETITIVENESS
__________________________________________________________
The Institute testified on July 21 before the House Ways
and Means Committee on international competitiveness issues
affecting the U.S. investment company industry. Attached are
both oral and written testimony submitted by the Institute.
The testimony states that there are two tax requirements
that preclude U.S. funds from competing effectively with foreign
funds for foreign investors. First, interest and short-term
capital gain received by a U.S. fund are converted into dividends
when distributed by the fund, and U.S. withholding tax is imposed
when these dividends are paid to foreign shareholders.
Conversely, no U.S. withholding tax is imposed on interest or
short-term capital gain distributed to foreign investors in
foreign funds. Second, U.S. funds are required to distribute
their income each year, thus subjecting the foreign investor to
current taxation in his home country. In contrast, foreign funds
often may "build up", or accumulate, their income and gain,
allowing the foreign shareholder to pay tax only when fund shares
are sold, if ever.
The Institute urged the Committee to adopt the provisions
of S. 1748, the "International Competitiveness Act" introduced
last year by Senator Baucus. (See Institute Memorandum to Tax
Members No. 41-91, International Members No. 5-91, and
Accounting/Treasurers Members No. 27-91, dated September 25,
1991.) That bill would allow the character of interest and
short-term capital gain to pass through to foreign shareholders,
permitting these distributions generally to be free from U.S.
withholding tax. In addition, the bill would permit the creation
of an "International Regulated Investment Company" or "IRIC",
which would hold only the shares of a single U.S. fund and which
could be sold only to foreigners. Like many foreign funds, the
IRIC would not be required to distribute its income each year.
We will keep you informed of further developments.
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David J. Mangefrida Jr.
Assistant Counsel - Tax
Attachment