Tax Parity for U.S. Mutual Funds Act of 2021
Bill: H.R.3142 | Sponsor: Rep. Davis, Danny K. (D-IL)
Policy area: Taxation

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.

To amend the Internal Revenue Code of 1986 to provide for International 
                    Regulated Investment Companies.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Tax Parity for U.S. Mutual Funds Act 
of 2021''.

SEC. 2. INTERNATIONAL REGULATED INVESTMENT COMPANIES.

    (a) In General.--Subchapter N of chapter 1 of the Internal Revenue 
Code of 1986 is amended by redesignating part V as part VI and 
inserting after part IV the following new part:

         ``PART V--INTERNATIONAL REGULATED INVESTMENT COMPANIES

``Sec. 998. Definition of international regulated investment company.
``Sec. 998A. Taxation of IRICs.
``Sec. 998B. Other rules.

``SEC. 998. DEFINITION OF INTERNATIONAL REGULATED INVESTMENT COMPANY.

    ``(a) General Rule.--For purposes of this title, the terms 
`international regulated investment company' and `IRIC' mean, with 
respect to any taxable year, a domestic corporation which, at all times 
during the taxable year, meets the following requirements:
            ``(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.

``SEC. 998A. TAXATION OF IRICS.

    ``(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' for `30 
        percent'.
            ``(2) Treaty iric.--For purposes of paragraph (1), the term 
        `treaty IRIC' means an 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).

``SEC. 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 of the Internal Revenue Code of 1986 is amended by 
redesignating the item relating to part V as relating to part VI and 
inserting after the item relating to part IV the following new item:

``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.
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