Tax Parity for U.S. Mutual Funds Act of 2021

To amend the Internal Revenue Code of 1986 to provide for International Regulated Investment Companies. 1. Short title This Act may be cited as the Tax Parity for U.S. Mutual Funds Act of 2021 2. International regulated investment companies (a) In general Subchapter N of chapter 1 V International regulated investment companies Sec. 998. Definition of international regulated investment company. Sec. 998A. Taxation of IRICs. Sec. 998B. Other rules. 998. Definition of international regulated investment company (a) General rule For purposes of this title, the terms international regulated investment company IRIC (1) The corporation is registered under the Investment Company Act of 1940. (2) Except as provided in subsection (c), the corporation holds no assets other than the stock of a single regulated investment company— (A) to which part I of subchapter M applies, and (B) which is not a qualified investment entity (as defined in section 897(h)(4)(A)(ii)). (3) All outstanding stock of the corporation is held by nonresident alien individuals (and their foreign estates) and qualified foreign pension funds (within the meaning of section 897(l)(2)). (4) The corporation has in effect an election to be treated as an IRIC. (b) Election An election to be treated as an IRIC shall apply to the taxable year for which made and all subsequent taxable years until terminated. Such election shall be made for any taxable year not later than the due date (with extensions) for the return of tax imposed by this subtitle for the taxable year. (c) Permitted assets For purposes of subsection (a)(2), an IRIC may hold— (1) an amount of cash and cash equivalents reasonably necessary or appropriate for the corporation to conduct its normal affairs, and (2) such other assets as are incidental to the corporation’s conduct of its normal affairs or otherwise allowed by the Secretary. (d) Termination (1) In general Except as provided in paragraph (2), if a corporation fails to meet the requirements of subsection (a) at any time during the taxable year, the corporation shall not be treated as an IRIC for such taxable year. (2) Inadvertent failure (A) In general A corporation which fails to meet the requirements of subsection (a) for any taxable year shall nevertheless be considered to have satisfied the requirements of such subsection for such taxable year if— (i) the failure was due to reasonable cause and not due to willful neglect, (ii) no later than 30 days after the discovery of the event causing such failure, the corporation meets the requirements of subsection (a), (iii) in the case of a failure to meet the requirements of subsection (a)(3) for any period, the failure was caused by persons not described therein holding, in the aggregate, less than 1 percent of the stock (by value) of the corporation, and (iv) the corporation pays the additional tax imposed by reason of subparagraph (B). (B) Imposition of additional tax on certain failures In the case of a failure described in subparagraph (A)(iii) for any taxable year, the tax imposed by section 998A(a) on the IRIC shall be equal to the sum of— (i) the tax determined under such section (without regard to this subparagraph) on amounts received by the IRIC for the taxable year other than amounts so received which are attributable to stock held by persons not described in subsection (a)(3) for the period so held, plus (ii) 100 percent of the amounts received which are so attributable. The Secretary shall prescribe rules for the proper allocation of deductions to amounts described in this subparagraph. 998A. Taxation of IRIC s (a) In general In the case of an IRIC, there shall be imposed, in lieu of the tax imposed by section 11, a tax equal to 30 percent of the excess of— (1) the amounts received by the IRIC which (before the application of any treaty) would be subject to tax under section 871(a) if received by a nonresident alien individual, over (2) the deductions properly allocable to such amounts (other than deductions allowed under sections 163, 172, 243, and such other provisions as the Secretary may prescribe in regulations to prevent abuse). (b) Treaties (1) In general In the case of a treaty IRIC, subsection (a) shall be applied by substituting 15 percent 30 percent (2) Treaty IRIC For purposes of paragraph (1), the term treaty IRIC (A) all the outstanding stock of which is held by persons resident in a country that has in effect with the United States an income tax treaty pursuant to which such persons would, by reason of section 894(a), be subject to tax under section 871(a) on dividends at a rate not greater than 15 percent, and (B) which elects to be a treaty IRIC. Rules similar to the rules of section 998(b) shall apply to an election under subparagraph (B). 998B. Other rules (a) Coordination with subchapter M Except as provided in subsection (e), an IRIC shall not be treated as a regulated investment company for purposes of this title. (b) No carryovers (1) Carryovers to IRIC years No carryforward, and no carryback, arising for a taxable year for which the corporation is not an IRIC may be carried to a taxable year for which such corporation is an IRIC. (2) Carryovers from IRIC years No carryforward, and no carryback, shall arise for a taxable year for which a corporation is an IRIC. (c) Certain taxes not To apply Sections 55, 531, and 541 shall not apply to an IRIC. (d) Credits not allowed No credits under this chapter shall be allowed to an IRIC. (e) Redemptions In applying section 302(b)(5), an IRIC shall be treated as a publicly offered regulated investment company. (f) Reliance on certification (1) Reliance With respect to the requirement in sections 998(a)(3) and 998A(b)(2)(A), a corporation may rely on the certification of its shareholders, unless or until such time that the corporation has reason to know that the certification is false or is no longer true. (2) Redemption upon false certification If a corporation has reason to know that the certification made by one of its shareholders is false or is no longer true, the corporation must redeem the stock held by such shareholder as soon as reasonably practicable (and in no case more than 30 days after the corporation obtains such reason to know). Failure to redeem such stock in a timely manner shall result in the corporation failing the requirement of section 998(a)(3) or 998A(b)(2)(A), whichever is applicable. (3) Certification by certain institutions For purposes of this subsection, a certification with regard to a person which is made by an institution described in section 871(h)(5)(B) in a form satisfactory to the Secretary under section 871(h) shall be deemed to be a certification by such person. . (b) Clerical amendment The table of parts for subchapter N of chapter 1 Part V—International regulated investment companies . (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

Summary: Tax Parity for U.S. Mutual Funds Act of 2021 This bill establishes international regulated investment companies (IRICs) and specifies rules for the taxation of such companies. An IRIC is a regulated investment company (i.e., a mutual fund) that has all of its outstanding stock held by foreign shareholders, including nonresident alien individuals (and their foreign estates) and qualified foreign pension funds, and meets other specified requirements.