[Congressional Record Volume 143, Number 70 (Friday, May 23, 1997)]
[Senate]
[Page S5132]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself, Mr. Gorton, and Mrs. Murray):
  S. 815. 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; to the 
Committee on Finance.


               the investment competitiveness act of 1997

  Mr. BAUCUS. Mr President, the U.S. mutual fund industry has become a 
dominant force in developing, marketing, and managing assets for 
American investors. Since 1990, assets under management by U.S. mutual 
funds have grown from $1 trillion to about $3.5 trillion today. Yet, 
while direct foreign investment in U.S. securities is strong, foreign 
investment in U.S. mutual funds has remained relatively flat.
  Mr President, today I am introducing, along with Senators Gorton and 
Murray, the Investment Competitiveness Act of 1997. This legislation, 
which I have had the honor of cosponsoring in each of the last three 
Congresses, would eliminate a major barrier to attracting foreign 
capital into the United States while improving the competitiveness of 
the U.S. mutual fund industry.
  This legislation would remove a barrier to the sale and distribution 
of U.S. mutual funds outside the United States. The bill would change 
the Internal Revenue Code to provide that foreign investors in U.S. 
mutual funds be accorded the same tax treatment as if they had made 
their investments directly in U.S. stocks or shares of a foreign mutual 
fund.
  Under current law, most kinds of interest and short-term capital 
gains received directly by an investor outside the United States or 
received through a foreign mutual fund are not subject to the 30-
percent withholding tax on investment income. However, interest and 
short-term capital gain income received by a foreign investor through a 
U.S. mutual fund are subject to the withholding tax. This result occurs 
because current law characterizes interest income as short-term capital 
gain distributed by a U.S. mutual fund to a foreign investor as a 
dividend subject to withholding.
  The Investment Competitiveness Act would correct this inequity and 
put U.S. mutual funds on a competitive footing with foreign funds. The 
bill would correctly permit interest income and short-term capital gain 
to retain their character upon distribution.
  Current law acts as a prohibitive export tax on foreign investors who 
choose to invest in U.S. funds. That is why the amount of foreign 
investment in U.S. mutual funds is small.
  Mr President, it is time to dismantle the unfair and unwanted tax 
barrier to foreign investment in U.S. mutual funds. The American 
economy will benefit from exporting U.S. mutual funds, creating an 
additional inflow of investment into U.S. securities markets without a 
dilution of U.S. control of American business that occurs through 
direct foreign investment in U.S. companies. Moreover, the legislation 
will support job creation among ancillary fund service providers 
located in the United States, rather than in offshore service 
facilities.
  Mr President, I very much appreciate the efforts of Senators Gorton 
and Murray in cosponsoring this legislation and I urge my colleagues to 
support this bill.
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