SECTION 1. SHORT TITLE.

    (a) Short Title.--This Act may be cited as the ``Investment 
Competitiveness Act of 1999''.
    (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.
Revises provisions concerning: (1) the estate tax treatment of stock in certain regulated investment companies owned by a nonresident; and (2) the distribution of U.S. property by a qualified investment entity (currently, a real estate investment trust).
Investment Competitiveness Act of 1999