[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1267 Introduced in House (IH)]
107th CONGRESS
1st Session
H. R. 1267
To amend the Internal Revenue Code of 1986 to provide tax treatment for
foreign investment through a United States regulated investment company
comparable to the tax treatment for direct foreign investment and
investment through a foreign mutual fund.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 28, 2001
Mr. Crane (for himself, Ms. Dunn, Mr. Smith of Washington, and Mr.
Hastings of Washington) introduced the following bill; which was
referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide tax treatment for
foreign investment through a United States regulated investment company
comparable to the tax treatment for direct foreign investment and
investment through a foreign mutual fund.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) Short Title.--This Act may be cited as the ``Investment
Competitiveness Act''.
(b) Amendment of 1986 Code.--Whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered to be
made to a section or other provision of the Internal Revenue Code of
1986.
SEC. 2. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT
COMPANIES.
(a) Treatment of Certain Dividends.--
(1) Nonresident alien individuals.--Section 871 (relating
to tax on nonresident alien individuals) is amended by
redesignating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
``(k) Exemption for Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any interest-
related dividend received from a regulated investment
company.
``(B) Exceptions.--Subparagraph (A) shall not
apply--
``(i) to any interest-related dividend
received from a regulated investment company by
a person to the extent such dividend is
attributable to interest (other than interest
described in subparagraph (E)(i)(I) or (III) or
(E)(ii)) received by such company on
indebtedness issued by such person or by any
corporation or partnership with respect to
which such person is a 10-percent shareholder,
``(ii) to any interest-related dividend
with respect to stock of a regulated investment
company unless the person who would otherwise
be required to deduct and withhold tax from
such dividend under chapter 3 receives a
statement (which meets requirements similar to
the requirements of subsection (h)(5)) that the
beneficial owner of such stock is not a United
States person, and
``(iii) to any interest-related dividend
paid to any person within a foreign country (or
any interest-related dividend payment addressed
to, or for the account of, persons within such
foreign country) during any period described in
subsection (h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock which was acquired on or before
the date of the publication of the Secretary's
determination under subsection (h)(6).
``(C) Interest-related dividend.--For purposes of
this paragraph, an interest-related dividend is any
dividend (or part thereof) which is designated by the
regulated investment company as an interest-related
dividend in a written notice mailed to its shareholders
not later than 60 days after the close of its taxable
year. If the aggregate amount so designated with
respect to a taxable year of the company (including
amounts so designated with respect to dividends paid
after the close of the taxable year described in
section 855) is greater than the qualified net interest
income of the company for such taxable year, the
portion of each distribution which shall be an
interest-related dividend shall be only that portion of
the amounts so designated which such qualified net
interest income bears to the aggregate amount so
designated.
``(D) Qualified net interest income.--For purposes
of subparagraph (C), the term `qualified net interest
income' means the qualified interest income of the
regulated investment company reduced by the deductions
properly allocable to such income.
``(E) Qualified interest income.--For purposes of
subparagraph (D), the term `qualified interest income'
means the sum of--
``(i) the following amounts derived by the
regulated investment company from sources
within the United States--
``(I) any amount includible in
gross income as original issue discount
(within the meaning of section 1273) on
an obligation payable 183 days or less
from the date of original issue
(without regard to the period held by
the company);
``(II) any interest includible in
gross income (including amounts
recognized as ordinary income in
respect of original issue discount or
market discount or acquisition discount
under part V of subchapter P and such
other amounts as regulations may
provide) on an obligation which is
in registered form; except that this clause shall not apply to any
interest on an obligation issued by a corporation or partnership if the
regulated investment company is a 10-percent shareholder in such
corporation or partnership, and to any interest which is treated as not
being portfolio interest under the rules of subsection (h)(4);
``(III) any interest referred to in
subsection (i)(2)(A) (without regard to
the trade or business of the regulated
investment company); and
``(IV) any interest-related
dividend includible in gross income
with respect to stock of another
regulated investment company; and
``(ii) any interest derived by the
regulated investment company from sources
outside the United States other than interest
that is subject to a tax imposed by a foreign
jurisdiction if the amount of such tax is
reduced (or eliminated) by a treaty with the
United States.
``(F) 10-percent shareholder.--For purposes of this
paragraph, the term `10-percent shareholder' has the
meaning given to such term by subsection (h)(3)(B).
``(2) Short-term capital gain dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any short-term
capital gain dividend received from a regulated
investment company.
``(B) Exception for aliens taxable under subsection
(a)(2).--Subparagraph (A) shall not apply in the case
of any nonresident alien individual subject to tax
under subsection (a)(2).
``(C) Short-term capital gain dividend.--For
purposes of this paragraph, a short-term capital gain
dividend is any dividend (or part thereof) which is
designated by the regulated investment company as a
short-term capital gain dividend in a written notice
mailed to its shareholders not later than 60 days after
the close of its taxable year. If the aggregate amount
so designated with respect to a taxable year of the
company (including amounts so designated with respect
to dividends paid after the close of the taxable year
described in section 855) is greater than the qualified
short-term gain of the company for such taxable year,
the portion of each distribution which shall be a
short-term capital gain dividend shall be only that
portion of the amounts so designated which such
qualified short-term gain bears to the aggregate amount
so designated.
``(D) Qualified short-term gain.--For purposes of
subparagraph (C), the term `qualified short-term gain'
means the excess of the net short-term capital gain of
the regulated investment company for the taxable year
over the net long-term capital loss (if any) of such
company for such taxable year. For purposes of this
subparagraph--
``(i) the net short-term capital gain of
the regulated investment company shall be
computed by treating any short-term capital
gain dividend includible in gross income with
respect to the stock of another regulated
investment company as a short-term capital
gain, and
``(ii) the excess of the net short-term
capital gain for a taxable year over the net
long-term capital loss for a taxable year (to
which an election under section 4982(e)(4) does
not apply) shall be determined without regard
to any net capital loss or net short-term
capital loss attributable to transactions after
October 31 of such year, and any such net
capital loss or net short-term capital loss
shall be treated as arising on the 1st day of
the next taxable year.
To the extent provided in regulations, clause (ii)
shall apply also for purposes of computing the taxable
income of the regulated investment company.''.
(2) Foreign corporations.--Section 881 is amended by
redesignating subsection (e) as subsection (f) and by inserting
after subsection (d) the following new subsection:
``(e) Tax Not To Apply to Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1) of subsection (a) on any interest-related
dividend (as defined in section 871(k)(1)) received
from a regulated investment company.
``(B) Exception.--Subparagraph (A) shall not
apply--
``(i) to any dividend referred to in
section 871(k)(1)(B), and
``(ii) to any interest-related dividend
received by a controlled foreign corporation
(within the meaning of section 957(a)) to the
extent such dividend is attributable to
interest received by the regulated investment
company from a person who is a related person
(within the meaning of section 864(d)(4)) with
respect to such controlled foreign corporation.
``(C) Treatment of dividends received by controlled
foreign corporations.--The rules of subsection
(c)(5)(A) shall apply to any interest-related dividend
received by a controlled foreign corporation (within
the meaning of section 957(a)) to the extent such
dividend is attributable to interest received by the
regulated investment company which is described in
subclause (II) of section 871(k)(1)(E)(i) (and not
described in subclause (I) or (III) thereof).
``(2) Short-term capital gain dividends.--No tax shall be
imposed under paragraph (1) of subsection (a) on any short-term
capital gain dividend (as defined in section 871(k)(2))
received from a regulated investment company.''.
(3) Withholding taxes.--
(A) Subsection (c) of section 1441 is amended by
adding at the end thereof the following new paragraph:
``(12) Certain dividends received from regulated investment
companies.--
``(A) In general.--No tax shall be required to be
deducted and withheld under subsection (a) from any
amount exempt from the tax imposed by section
871(a)(1)(A) by reason of section 871(k).
``(B) Special rule.--For purposes of subparagraph
(A), clause (i) of section 871(k)(1)(B) shall not apply
to any dividend unless the regulated investment company
knows that such dividend is a dividend referred to in
such clause. A similar rule shall apply with respect to
the exception contained in section 871(k)(2)(B).''.
(B) Subsection (a) of section 1442 is amended--
(i) by striking ``and the reference in
section 1441(c)(10)'' and inserting ``the
reference in section 1441(c)(10)'', and
(ii) by inserting before the period at the
end thereof the following: ``, and the
references in section 1441(c)(12) to sections
871(a) and 871(k) shall be treated as referring
to sections 881(a) and 881(e) (except that for
purposes of applying subparagraph (A) of
section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply to
any dividend unless the regulated investment
company knows that such dividend is a dividend
referred to in such clause)''.
(b) Estate Tax Treatment of Interest in Certain Regulated
Investment Companies.--Section 2105 (relating to property without the
United States for estate tax purposes) is amended by adding at the end
thereof the following new subsection:
``(d) Stock in a Regulated Investment Company.--
``(1) In general.--For purposes of this subchapter, stock
in a regulated investment company (as defined in section 851)
owned by a nonresident not a citizen of the United States shall
not be deemed property within the United States in the
proportion that, at the end of the quarter of such investment
company's taxable year immediately preceding the decedent's
date of death (or at such other time as the Secretary may
designate in regulations), the assets of the investment company
that were qualifying assets with respect to the decedent bore
to the total assets of the investment company.
``(2) Qualifying assets.--For purposes of this subsection,
qualifying assets with respect to a decedent are assets that,
if owned directly by the decedent, would have been--
``(A) amounts, deposits, or debt obligations
described in subsection (b) of this section,
``(B) debt obligations described in the last
sentence of section 2104(c), or
``(C) other property not within the United
States.''.
(c) Treatment of Regulated Investment Companies Under Section
897.--
(1) Paragraph (1) of section 897(h) is amended by striking
``REIT'' each place it appears and inserting ``qualified
investment entity''.
(2) Paragraphs (2) and (3) of section 897(h) are amended to
read as follows:
``(2) Sale of stock in domestically-controlled entity not
taxed.--The term `United States real property interest' does
not include any interest in a domestically-controlled qualified
investment entity.
``(3) Distributions by domestically-controlled qualified
investment entities.--In the case of a domestically-controlled
qualified investment entity, rules similar to the rules of
subsection (d) shall apply to the foreign ownership percentage
of any gain.''.
(3) Subparagraphs (A) and (B) of section 897(h)(4) are
amended to read as follows:
``(A) Qualified investment entity.--The term
`qualified investment entity' means any real estate
investment trust and any regulated investment company.
``(B) Domestically-controlled.--The term
`domestically-controlled qualified investment entity'
means any qualified investment entity in which at all
times during the testing period less than 50 percent in
value of the stock was held directly or indirectly by
foreign persons.''.
(4) Subparagraphs (C) and (D) of section 897(h)(4) are each
amended by striking ``REIT'' and inserting ``qualified
investment entity''.
(5) The subsection heading for subsection (h) of section
897 is amended by striking ``REITS'' and inserting ``Certain
Investment Entities''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
dividends with respect to taxable years of regulated investment
companies beginning after the date of the enactment of this
Act.
(2) Estate tax treatment.--The amendment made by subsection
(b) shall apply to estates of decedents dying after the date of
the enactment of this Act.
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