Congress Approves Legislation Enhancing U.S. Funds' International Competitiveness

Washington, DC, October 14, 2004 - The Institute strongly supports legislation recently approved by Congress that removes significant U.S. tax barriers to foreign investment in U.S. mutual funds.

H.R. 4520, the American Jobs Creation Act of 2004, was approved by the full U.S. House of Representatives in June and by the Senate on October 11. President Bush is expected to sign the legislation.

Besides the changes to U.S. tax rules for foreign investors, H.R. 4520 includes a number of other tax provisions that impact mutual funds and their shareholders. For example, the Institute strongly advocated for a provision in the legislation that will exempt from U.S. withholding tax distributions of short-term capital gains and U.S.-source interest income by U.S. mutual funds to foreign investors. By permitting short-term capital gains and U.S.-source interest income distributed by U.S. funds to "flow through" to foreign investors, H.R. 4520 will provide foreign investors in U.S. funds with the same tax treatment applied to direct investments or investments made through foreign funds. In addition, the provision, which applies to dividends for taxable years beginning after December 31, 2004 and before January 1, 2008, will reduce federal tax revenues by $186 million.

ICI Position
The Institute has long supported the enactment of legislation to make U.S. funds available to foreign investors without adverse U.S. withholding tax treatment. In a June letter to House officials, the Institute stated that H.R. 4520 would greatly enhance the attractiveness of U.S. funds overseas.

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