I

104TH CONGRESS

1ST SESSION H. R. 1178

To amend the Internal Revenue Code of 1986 with respect to the treatment

of effectively connected investment income of insurance companies.

IN THE HOUSE OF REPRESENTATIVES

MARCH 9, 1995

Mr. CAMP (for himself and Mr. LEVIN) introduced the following bill; which

was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 with respect

to the treatment of effectively connected investment income of insurance companies.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. FOREIGN COMPANIES CARRYING ON INSUR4 ANCE BUSINESS.

5 (a) TREATMENT OF EFFECTIVELY CONNECTED NET

6 INVESTMENT INCOME OF INSURANCE COMPANIES.—

7 (1) IN GENERAL.—Subsection (b) of section

8 842 of the Internal Revenue Code of 1986 is amend9 ed by redesignating paragraphs (2), (3), (4), and (5)

10 as paragraphs (6), (7), (8), and (9), respectively,
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1 and by striking paragraph (1) and inserting the fol2 lowing new paragraphs:

3 ‘‘(1) RECOMPUTATION OF NET INVESTMENT IN4 COME.—Each foreign company taxable under part I

5 or II of this subchapter shall recompute its effec6 tively connected net investment income for any tax7 able year beginning after December 31, 1987 (here8 after in this subsection referred to as the ‘recom9 puted year’) by making the adjustments specified in

10 paragraph (2) for the second succeeding taxable year

11 (hereafter in the section referred to as the ‘adjust12 ment year’).

13 ‘‘(2) ADJUSTMENTS.—

14 ‘‘(A) INCREASE WHERE RECOMPUTED

15 AMOUNT GREATER.—If—

16 ‘‘(i) the recomputed effectively con17 nected net investment income for the re18 computed year, exceeds

19 ‘‘(ii) the effectively connected net in20 vestment income for such year (determined

21 without regard to this subsection),

22 such excess shall increase the effectively con23 nected net investment income for the adjust24 ment year.
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1 ‘‘(B) DECREASE WHERE RECOMPUTED

2 AMOUNT LESSER.—If—

3 ‘‘(i) the effectively connected net in4 vestment income for the recomputed year

5 (determined without regard to this sub6 section), exceeds

7 ‘‘(ii) the recomputed effectively con8 nected net investment income for such

9 year,

10 such excess shall reduce the effectively con11 nected net investment income for the adjust12 ment year.

13 ‘‘(C) INTEREST ON ADJUSTMENTS.—The

14 foreign company shall pay (or be entitled to re15 ceive) interest in the amount which would have

16 been computed under chapter 67 on the

17 underpayment or overpayment (as the case may

18 be) which would have resulted if the adjustment

19 under subparagraph (A) or (B) (whichever ap20 plies) were made for the recomputed year.

21 ‘‘(3) RECOMPUTED EFFECTIVELY CONNECTED

22 NET INVESTMENT INCOME.—For purposes of this

23 subsection, the term ‘recomputed effectively con24 nected net investment income’ means the greater

25 of—
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1 ‘‘(A) the cumulative effectively connected

2 net investment income (determined without re3 gard to this subsection) for the recomputed

4 year and all preceding taxable years beginning

5 after December 31, 1987, or

6 ‘‘(B) the cumulative minimum effectively

7 connected net investment income for the recom8 puted year and such preceding taxable years,

9 reduced by the amount of the cumulative recom10 puted effectively connected net investment income

11 determined under this subsection for such preceding

12 taxable years.

13 ‘‘(4) MINIMUM EFFECTIVELY CONNECTED NET

14 INVESTMENT INCOME.—For purposes of this sub15 section, the term ‘minimum effectively connected net

16 investment income’ means, with respect to any tax17 able year, the product of—

18 ‘‘(A) the required United States assets of

19 the foreign company, and

20 ‘‘(B) the domestic investment yield applica21 ble to such company for such taxable year.

22 ‘‘(5) EFFECTIVELY CONNECTED NET INVEST23 MENT INCOME.—For purposes of this subsection, the

24 term ‘effectively connected net investment income’

25 means the net investment income which is effectively
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1 connected with the conduct of an insurance business

2 within the United States.’’

3 (2) CONFORMING AMENDMENTS.—

4 (A) Paragraph (6) of section 842(b) of

5 such Code, as redesignated by subsection (a), is

6 amended by striking ‘‘paragraph (1)’’ and in7 serting ‘‘paragraph (4)’’.

8 (B) Paragraph (7) of section 842(b) of

9 such Code, as redesignated by subsection (a), is

10 amended by striking ‘‘paragraph (1)(B)’’ and

11 inserting ‘‘paragraph (4)(B)’’.

12 (C) Subparagraph (A) of section 842(b)(8)

13 of such Code, as redesignated by subsection (a),

14 is amended by striking ‘‘paragraph (1)(B)’’ and

15 inserting ‘‘paragraph (4)(B)’’.

16 (D) Paragraph (3) of section 842(c) of

17 such Code is amended to read as follows:

18 ‘‘(3) ADJUSTMENT OF LIMITATION ON DEDUC19 TION FOR POLICYHOLDER DIVIDENDS IN CASE OF

20 FOREIGN MUTUAL LIFE INSURANCE COMPANIES.—

21 For purposes of section 809, the equity base of any

22 foreign mutual life insurance company as of the

23 close of any adjustment year shall be increased by

24 the excess of—
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1 ‘‘(A) the required United States assets of

2 the company for the second preceding taxable

3 year (determined under subsection (b)(6)), over

4 ‘‘(B) the mean of the assets held in the

5 United States during the second preceding tax6 able year.’’

7 (E) Paragraph (4) of section 842(c) of

8 such Code is amended to read as follows:

9 ‘‘(4) DATA USED IN DETERMINING DOMESTIC

10 ASSET/LIABILITY PERCENTAGES AND DOMESTIC IN11 VESTMENT YIELDS.—Each domestic asset/liability

12 percentage, and each domestic investment yield, for

13 any taxable year shall be based on representative tax

14 return data with respect to domestic insurance com15 panies for such taxable year (or where such data is

16 unavailable, such representative data as the Sec17 retary considers appropriate).’’

18 (b) EFFECTIVE DATE.—The amendments made by

19 this section shall apply as if included in the provision of

20 the Omnibus Budget Reconciliation Act of 1987 to which

21 they relate.

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