I
105TH CONGRESS
1ST SESSION
H. R. 707
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
FEBRUARY 12, 1997
Mr. CRANE (for himself, Ms. DUNN, and Mr. MCDERMOTT) 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 invest-
ment through a foreign mutual fund.
Be it enacted by the Senate and House of Representa-
tives 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 of 1997’’.
(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 REGU-
LATED INVESTMENT COMPANIES.
(a) TREATMENT OF CERTAIN DIVIDENDS.—
(1) NONRESIDENT ALIEN INDIVIDUALS.—Sec-
tion 871 (relating to tax on nonresident alien indi-
viduals) 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 REG-
ULATED 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 com-
pany by a person to the extent such divi-
dend is attributable to interest (other than
interest described in subparagraph (E) (i)
or (iii)) received by such company on in-
debtedness issued by such person or by any
corporation or partnership with respect to
which such person is a 10-percent share-
holder,
‘‘(ii) to any interest-related dividend
with respect to stock of a regulated invest-
ment 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 require-
ments of subsection (h)(5)) that the bene-
ficial owner of such stock is not a United
States person, and
‘‘(iii) to any interest-related dividend
paid to any person within a foreign coun-
try (or any interest-related dividend pay-
ment addressed to, or for the account of,
persons within such foreign country) dur-
ing 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 Sec-
retary’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 com-
pany as an interest-related dividend in a writ-
ten notice mailed to its shareholders not later
than 60 days after the close of its taxable year.
If the aggregate amount so designated with re-
spect to a taxable year of the company (includ-
ing amounts so designated with respect to divi-
dends 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 distribu-
tion which shall be an interest-related dividend
shall be only that portion of the amounts so
designated which such qualified net interest in-
come bears to the aggregate amount so des-
ignated.
‘‘(D) 
QUALIFIED
NET
INTEREST
IN-
COME.—For purposes of subparagraph (C), the
term ‘qualified net interest income’ means the
qualified interest income of the regulated in-
vestment company reduced by the deductions
properly allocable to such income.
‘‘(E) QUALIFIED INTEREST INCOME.—For
purposes of subparagraph (D), the term ‘quali-
fied interest income’ means the sum of the fol-
lowing amounts derived by the regulated invest-
ment 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 obliga-
tion payable 183 days or less from the date
of original issue (without regard to the pe-
riod 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 reg-
istered form; except that this clause shall
not apply to—