Dividend Plan Puzzles Managers

The new U.S. dividend tax cut plan has spurred interest in dividend-paying domestic stocks. But what about funds that put money into foreign stocks paying dividends?

More than a month after the tax reduction was signed into law, many portfolio managers of U.S.-based international stock funds remain puzzled about just how much investors in their funds will gain from the dividend tax cut. Some managers think the tax cut will apply to nearly all foreign stocks bought by U.S. funds, but others assume they will apply to just a small group of foreign companies.

The tax legislation says dividends paid by foreign companies whose securities trade on U.S. stock exchanges will be taxed at a new 15% rate, down from as high as 38.6% previously. But causing confusion among experts about the new dividend treatment is a sentence in the new law reading: “Non-U.S. traded stocks may be qualified if certain treaty requirements are met.”