Bill to Eliminate Investment Tax Barrier Introduced

Washington, DC, July 8, 1999 - Legislation to permit the character of interest income and short-term capital gains to flow through a regulated investment company to foreign shareholders has been introduced by Representatives Crane, Dunn, and McDermott as H.R. 2430, the "Investment Competitiveness Act of 1999." For these purposes, U.S.-source interest and foreign-source interest that is free from foreign withholding tax under the domestic laws of the source country (such as interest from "Eurobonds") would be eligible for flow-through treatment. The legislation, however, would deny flow-though treatment for interest from any foreign bond on which the source-country tax rate is reduced pursuant to a tax treaty with the United States. Similar bipartisan legislation limited to U.S.-source interest and short-term capital gains was introduced earlier this year.

Under present law, interest income and short-term capital gains, which otherwise would be exempt from U.S. withholding tax when received by foreign investors either directly or through a foreign fund, are subject to U.S. withholding tax when distributed by a U.S. fund to those investors. The Institute supports H.R. 2430 because it would eliminate this U.S. withholding tax barrier to foreign investment in U.S. funds.