Institute Requests Guidance on Implementing Decreased Tax on Foreign Dividends

Washington, DC, August 1, 2003 - The Investment Company Institute recently submitted a letter to the Treasury Department requesting additional guidance on steps to effectively implement the new 15 percent tax rate on dividends from qualified foreign corporations as established by the Jobs Growth and Tax Relief Reconciliation Act (H.R. 2).

Background
On May 28, 2003, President Bush signed H.R. 2 into law, which lowered to 15 percent the tax rate on long-term capital gain distributions from taxable accounts. Similarly, the law lowered to 15 percent the tax on dividends for domestic and most foreign stock that is held by an individual for more than 60 days.

In its letter, the Institute stresses the need for administrable rules to enable mutual funds and other portfolio investors to be able to identify qualified foreign corporations, and discusses some of the potential problems with relying on foreign corporations to certify their status as qualified foreign corporations. The Institute states that, as the burden primarily falls on shareholders to make the decision as to how to treat dividends from a foreign corporation, guidance should be issued to enable shareholders to make that determination without requiring extensive knowledge of information available to the corporation. The letter also reiterates the Institute's view that if dividends on an American Depository Receipt (ADR) are eligible for the 15 percent rate, then dividends on local shares of the same class of stock should also be eligible for the 15 percent rate.

ICI Position
The Institute has long supported legislation that provides reasonable tax treatment of fund shares, and that ends the requirement that tens of millions of middle-income mutual fund investors pay taxes on capital gains distributions and dividends received from their mutual funds even when they do not sell a single share of their funds.

In testimony submitted to the House Ways and Means Committee in March 2003, the Institute urged legislators to ensure that the tax benefits provided to direct investors in equities also are provided to shareholders of regulated investment companies.

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A section of this website is dedicated to the tax issues affecting fund shareholders, including Institute's efforts to ensure appropriate shareholder tax relief.