House Committee Approves Bill to Improve Tax Treatment for Foreign Mutual Fund Investors

Washington, DC, October 29, 2003 - The House Ways and Means Committee has approved a bill supported by the Institute that offers a tax incentive for foreign investment in U.S. mutual funds.

Background
Earlier this year, Rep. William Thomas (R-CA), Chairman of the House Ways and Means Committee, introduced the American Jobs Creation Act of 2003 (H.R. 2896) in order to repeal the Foreign Sales Corporation-Extraterritorial Income Act regime, under which short-term capital gains and U.S.-source interest income generally are exempt from U.S. withholding tax only if they are received directly by a foreign investor. The exemption does not, however, apply if the income flows through to foreign investors who invest in U.S. funds.

The modified version of H.R. 2896 includes a proposal to treat distributions of short-term capital gains and U.S.-source interest income by U.S. funds to foreign investors as exempt from U.S. withholding tax.

ICI Position
The Institute has long supported the enactment of legislation that makes U.S. funds available to foreign investors without imposing adverse U.S. withholding tax treatment. In an August letter to Rep. Thomas, Institute President Matthew P. Fink noted that H.R. 2896 would provide foreign investors in U.S. funds with the same tax treatment whether investments are made directly or through foreign funds, which would remove a significant disincentive for foreign investors in U.S. funds.

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