June 24, 1993
TO: BOARD OF GOVERNORS NO. 56-93
INTERNATIONAL MEMBERS NO. 18-93
TAX MEMBERS NO. 20-93
RE: INSTITUTE TESTIFIES ON INTERNATIONAL COMPETITIVENESS
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The Institute testified today before the Subcommittee on Select Revenue
Measures of the House Ways and Means Committee in support of H.R. 1891, the
Investment Competitiveness Act of 1993. (See Institute Memorandum to Tax
Members No. 14-93, International Members No. 13-93, and Accounting/Treasurers
Members No. 15-93, dated May 5, 1993.) Attached are the Institute's oral and
written testimony.
The testimony states that U.S. tax law precludes U.S. mutual funds from
competing effectively for foreign investors. Specifically, U.S. tax law
converts interest and short-term capital gain income that is earned by a U.S.
mutual fund into "dividend" income. When this income is distributed by the
U.S. fund to a foreign shareholder, the "dividend" is subject to U.S.
withholding tax. By contrast, U.S. withholding is not applied to interest or
capital gain income received by a foreign investor through a foreign mutual
fund.
The Institute urged the Subcommittee to support enactment of H.R. 1891,
which would permit a U.S. mutual fund to flow through to foreign shareholders
the character of both interest income and short-term capital gain income
earned by the fund. Thus, the fund could distribute this income to foreign
investors free from withholding.
We will keep you informed of further developments.
Catherine L. Heron
Vice President - Tax & Pension
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