Foreign Investors in U.S. Mutual Funds

Foreign Investors in U.S. Mutual Funds

Author: Jeffrey M. Colon

Publisher:

Published: 2016

Total Pages: 69

ISBN-13:

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The United States is generally a tax haven for foreign portfolio investors: the United States exempts from tax most U.S. source interest and capital gains, but taxes dividends from U.S. companies; tax treaties generally eliminate U.S. tax on interest and reduce the 30% statutory rate on dividends.Foreign investors in U.S. mutual funds have not been treated as favorably. Fund distributions (other than of net capital gains) were originally treated as taxable dividends, regardless of the fund's underlying income. Interest or short-term capital gains earned by the mutual fund -- which would have been tax exempt if directly earned by a foreign investor -- were converted into taxable dividend income when distributed.To encourage foreign investment in U.S. mutual funds, Congress in 2004 modified the mutual fund distribution rules to exempt from tax fund dividends that are attributable to the fund's U.S. source interest income or short-term capital gains. The stated goal of the legislation was to tax foreign investors on the same basis as if they had directly earned their share of a fund's income.These provisions fail to fully achieve this goal by denying pass-through treatment for foreign source interest and dividends. This policy appears to be aimed at preventing foreign investors from using a U.S. mutual fund to obtain U.S. treaty benefits.Foreign source income should retain its source and character when distributed to foreign shareholders. This tax treatment is consistent with the tax results a foreign investor realizes when he or she invests directly or through a partnership and encourages foreign investment in mutual funds that invest globally. The treaty shopping concerns may be illusory. To address potential treaty abuse, Congress could consider limiting the pass- through of foreign source income to treaty residents.


Foreign Investment in U.S. Securities

Foreign Investment in U.S. Securities

Author: James K. Jackson

Publisher: DIANE Publishing

Published: 2010-10

Total Pages: 27

ISBN-13: 1437927432

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Foreign capital inflows are playing an important role in the U.S. economy by bridging the gap between domestic supplies of and demand for capital. Foreign investors now hold more than 50% of the publicly held and traded U.S. Treasury securities. The large foreign accumulation of U.S. Securities (USS) increases the risk of a financial crisis, whether as a result of the uncoordinated actions of market participants or by a coordinated withdrawal from U.S. financial markets by foreign investors. Contents of this report: Capital Flows in the Economy, and the Dollar; Purchases and Sales of USS by Foreign Investors; Treasury Securities; Corp. Stocks and Bonds; Foreign Holdings of U.S. Long-Term Securities; Economic Implications. Charts and tables.


The Committee on Foreign Investment in the United States Cfius

The Committee on Foreign Investment in the United States Cfius

Author: Congressional Research Congressional Research Service

Publisher: Createspace Independent Publishing Platform

Published: 2016-08-12

Total Pages: 38

ISBN-13: 9781539454816

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The Committee on Foreign Investment in the United States (CFIUS) is comprised of nine members, two ex officio members, and other members as appointed by the President representing major departments and agencies within the federal executive branch. While the group generally has operated in relative obscurity, the proposed acquisition of commercial operations at six U.S. ports by Dubai Ports World in 2006 placed the group's operations under intense scrutiny by Members of Congress and the public. Prompted by this case, some Members of the 109th and 110th Congresses questioned the ability of Congress to exercise its oversight responsibilities given the general view that CFIUS's operations lack transparency. Other Members revisited concerns about the linkage between national security and the role of foreign investment in the U.S. economy. Some Members of Congress and others argued that the nation's security and economic concerns have changed since the September 11, 2001, terrorist attacks and that these concerns were not being reflected sufficiently in the Committee's deliberations. In addition, anecdotal evidence seemed to indicate that the CFIUS process was not market neutral. Instead, a CFIUS investigation of an investment transaction may have been perceived by some firms and by some in the financial markets as a negative factor that added to uncertainty and may have spurred firms to engage in behavior that may not have been optimal for the economy as a whole. On July 12, 2016, Senator Charles Grassley introduced S. 3161 to include the Secretary of Agriculture as a permanent member of the CFIUS and to include the national security impact of foreign investments on agricultural assets as part of the criteria the Committee uses in deciding to recommend that the President block a foreign acquisition.


International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey

International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey

Author: Mr.R. Gelos

Publisher: International Monetary Fund

Published: 2011-04-01

Total Pages: 29

ISBN-13: 1455253316

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Gaining a better understanding of the behavior of international investors is key for informing the debate about the optimal response to capital flows and about reforms to the international financial architecture. In this context, recent research on the behavior of international mutual funds at the micro level has expanded our knowledge about the drivers of portfolio flows and the mechanisms behind the transmission of financial shocks across countries. This paper provides a brief survey of this literature, with a focus on the empirical evidence for emerging markets. Overall, the behavior of international mutual funds is complex and overly simplistic characterizations are misleading. However, there is broad-based evidence for momentum trading among funds. Moreover, funds tend to avoid opaque markets and assets, and this behavior becomes more pronounced during volatile times. Portfolio rebalancing mechanisms are clearly important in explaining contagion patterns, even in the absence of common macroeconomic fundamentals. From a surveillance point of view, this implies that monitoring the exposures of large investors at a micro level is crucial to assess vulnerabilities.


Sovereign Wealth Funds

Sovereign Wealth Funds

Author: United States Government Accountability Office

Publisher: Createspace Independent Publishing Platform

Published: 2017-09-15

Total Pages: 68

ISBN-13: 9781976195181

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Foreign investors in U.S.companies or assets includeindividuals, companies, andgovernment entities. One type offoreign investor that has beenincreasingly active in worldmarkets is sovereign wealth funds(SWF), government-controlledfunds that seek to invest in othercountries. As the activities of thesefunds have grown they have beenpraised as providing valuablecapital to world markets, butquestions have been raised abouttheir lack of transparency and thepotential impact of theirinvestments on recipient countries.GAO's second report on SWFsreviews (1) U.S. laws thatspecifically affect foreigninvestment, including that by SWFs,in the United States and (2)processes agencies use to enforcethem. GAO reviewed policystatements, treaties, and U.S. laws,and interviewed and obtainedinformation from agenciesresponsible for enforcing theselaws. GAO also interviewed legalexperts and organizations that trackstate foreign investment issues.To enhance oversight of foreigninvestments,