I

103D CONGRESS

1ST SESSION H. R. 1228

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 4, 1993

Mr. LEVIN (for himself, Mr. LEWIS of Georgia, and Mr. CAMP) 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 OF THE INTERNAL REVENUE

5 CODE OF 1986.

6 (a) TREATMENT OF EFFECTIVELY CONNECTED NET

7 INVESTMENT INCOME OF INSURANCE COMPANIES.—

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

9 842 of the Internal Revenue Code of 1986 is amend10 ed by redesignating paragraphs (2), (3), (4), and (5)
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1 as paragraphs (6), (7), (8), and (9), respectively,

2 and by striking out paragraph (1) and inserting the

3 following new paragraphs:

4 ‘‘(1) RECOMPUTATION OF NET INVESTMENT IN5 COME.—Each foreign company taxable under part I

6 or II of this subchapter shall recompute its effec7 tively connected net investment income for any tax8 able year beginning after December 31, 1987 (here9 after in this subsection referred to as the ‘recom10 puted year’) by making the adjustments specified in

11 paragraph (2) for the second succeeding taxable year

12 (hereafter in the subsection referred to as the ‘ad13 justment year’).

14 ‘‘(2) ADJUSTMENTS.—

15 ‘‘(A) INCREASE WHERE RECOMPUTED

16 AMOUNT GREATER.—If—

17 ‘‘(i) the recomputed effectively con18 nected net investment income for the re19 computed year, exceeds

20 ‘‘(ii) the effectively connected net in21 vestment income for such year (determined

22 without regard to this subsection),

23 such excess shall increase the effectively con24 nected net investment income for the adjust25 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 (7) of section 842(b) of

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

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

7 inserting ‘‘paragraph (4)(B)’’.

8 (B) Subparagraph (A) of section 842(b)(8)

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

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

11 inserting ‘‘paragraph (4)(B)’’.

12 (C) Paragraph (3) of section 842(c) of

13 such Code is amended to read as follows:

14 ‘‘(3) ADJUSTMENT OF LIMITATION ON DEDUC15 TION FOR POLICYHOLDER DIVIDENDS IN THE CASE

16 OF FOREIGN MUTUAL LIFE INSURANCE COMPA17 NIES.—For purposes of section 809, the equity base

18 of any foreign mutual life insurance company as of

19 the close of any adjustment year shall be increased

20 by the excess of—

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

22 the company for the second preceding taxable

23 year (determined under subsection (b)(6)), over
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1 ‘‘(B) the mean of the assets held in the

2 United States during the second preceding tax3 able year.’’

4 (D) Paragraph (4) of section 842(c) of

5 such Code is amended to read as follows:

6 ‘‘(4) DATA USED IN DETERMINING DOMESTIC

7 ASSET/LIABILITY PERCENTAGES AND DOMESTIC IN8 VESTMENT YIELDS.—Each domestic asset/liability

9 percentage, and each domestic investment yield, for

10 any taxable year shall be based on representative tax

11 return data with respect to domestic insurance com12 panies for such taxable year (or where such data is

13 unavailable, such representative data as the Sec14 retary considers appropriate).’’

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

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

17 the Omnibus Budget Reconciliation Act of 1987 to which

18 they relate.

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