February 20, 1997
TO: BOARD OF GOVERNORS No. 8-97
FEDERAL LEGISLATION MEMBERS No. 4-97
PUBLIC INFORMATION COMMITTEE No. 5-97
RE: INVESTMENT COMPETITIVENESS ACT INTRODUCED IN HOUSE
______________________________________________________________________________
On February 12, 1997, Representatives Philip Crane (R-IL), Jennifer Dunn (R-WA), and
Jim McDermott (D-WA) introduced H.R. 707, the "Investment Competitiveness Act of 1997."
The purpose of the bill is to enhance the competitiveness of U.S. mutual funds by providing the
same U.S. tax treatment to foreign investors when they invest in a U.S. mutual fund as they
receive when they invest in a foreign mutual fund.
Current U.S. tax law imposes a withholding tax on dividends received by foreign
investors of up to 30 percent, while interest and short-term capital gains are generally not
subject to such tax. Since income derived from interest or short-term capital gain is treated as a
"dividend" when paid out, foreign investors in U.S. mutual funds are subject to the withholding
tax on these dividends. By contrast, however, income derived from interest or short-term
capital gain received by a foreign person investing through a foreign mutual fund (or investing
directly) is not subject to the tax, thereby creating a competitive inequity. The bill would
eliminate this inequity by permitting U.S. funds to "flow through" to foreign investors interest
and short-term gain that will not be subject to withholding tax.
It is expected that a similar bill will be introduced later this month in the Senate. The
Institute strongly supports these legislative proposals.
Attached is a copy of the statement made by Representative Crane in introducing H.R.
707.
We will keep you informed of further developments.
Matthew P. Fink
President
Attachment (in .pdf format)