Institute Submits Statement on U.S. Tax Rules and International Competitiveness

Washington, DC, July 8, 1999 - The Institute recently submitted a statement to the House Ways and Means Committee in connection with hearings on the impact of U.S. tax rules on international competitiveness. The Institute's statement urges the Committee to enhance the international competitiveness of U.S. funds by supporting the enactment of H.R. 2430, the "Investment Competitiveness Act of 1999," introduced by Representatives Crane, Dunn and McDermott.

H.R. 2430 would eliminate the U.S. withholding tax barrier to foreign investment in U.S. funds by permitting all U.S. funds-equity, balanced, and bond funds-generally to preserve, for U.S. withholding tax purposes, the character of interest income and short-term capital gains distributed to foreign investors. 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. However, flow-through treatment would be denied for interest from any foreign bond on which the source-country tax rate is reduced pursuant to a tax treaty with the United States.

The Institute's statement explains that enactment of H.R. 2430 merely would provide foreign investors in U.S. funds with the same treatment currently available when comparable investments are made directly or through foreign funds. Absent this change, foreign investors seeking to enter the U.S. capital markets or obtain access to U.S. professional portfolio management will continue to have a significant U.S. tax incentive not to invest in U.S. funds.