I

107TH CONGRESS

1ST SESSION H. R. 1755

To amend the Internal Revenue Code of 1986 to prevent the use of reinsurance with foreign persons to enable domestic nonlife insurance companies

to evade United States income taxation.

IN THE HOUSE OF REPRESENTATIVES

MAY 8, 2001

Mrs. JOHNSON of Connecticut (for herself and Mr. NEAL of Massachusetts)

introduced the following bill; which was referred to the Committee on

Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to prevent

the use of reinsurance with foreign persons to enable

domestic nonlife insurance companies to evade United

States income taxation.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Reinsurance Tax Eq5 uity Act of 2001’’.
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1 SEC. 2. PREVENTION OF EVASION OF UNITED STATES IN2 COME TAX ON NONLIFE INSURANCE COMPA3 NIES THROUGH USE OF REINSURANCE WITH

4 FOREIGN PERSONS.

5 (a) IN GENERAL.—Subparagraph (A) of section

6 832(b)(4) of the Internal Revenue Code of 1986 (relating

7 to insurance company taxable income) is amended to read

8 as follows:

9 ‘‘(A) From the amount of gross premiums

10 written on insurance contracts during the tax11 able year, deduct return premiums and pre12 miums paid for reinsurance (except as provided

13 in paragraph (9)).’’

14 (b) TREATMENT OF REINSURANCE WITH RELATED

15 REINSURERS.—Subsection (b) of section 832 of such Code

16 is amended by adding at the end the following new para17 graph:

18 ‘‘(9) DENIAL OF DEDUCTION UNDER PARA19 GRAPH (4) FOR REINSURANCE OF U.S. RISKS WITH

20 CERTAIN RELATED PERSONS.—

21 ‘‘(A) IN GENERAL.—No deduction shall be

22 allowed under paragraph (4) for premiums paid

23 for the direct or indirect reinsurance of United

24 States risks with a related reinsurer.

25 ‘‘(B) EXCEPTIONS.—This paragraph shall

26 not apply to any premium to the extent that—
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1 ‘‘(i) the income attributable to the re2 insurance to which such premium relates is

3 includible in the gross income of—

4 ‘‘(I) such reinsurer, or

5 ‘‘(II) 1 or more domestic cor6 porations or citizens or residents of

7 the United States, or

8 ‘‘(ii) the related insurer establishes to

9 the satisfaction of the Secretary that the

10 taxable income (determined in accordance

11 with this section 832) attributable to such

12 reinsurance is subject to an effective rate

13 of income tax imposed by a foreign country

14 at a rate greater than 20 percent of the

15 maximum rate of tax specified in section

16 11.

17 ‘‘(C) ELECTION BY REINSURER TO BE

18 TAXED ON INCOME.—Income of a related rein19 surer attributable to the reinsurance of United

20 States risks which is not otherwise includible in

21 gross income shall be treated as gross income

22 which is effectively connected with the conduct

23 of a trade or business in the United States if

24 such reinsurer—
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1 ‘‘(i) elects to so treat such income,

2 and

3 ‘‘(ii) meets such requirements as the

4 Secretary shall prescribe to ensure that the

5 taxes imposed by this chapter on such in6 come are paid.

7 ‘‘(D) DEFINITIONS.—For purposes of this

8 paragraph—

9 ‘‘(i) UNITED STATES RISK.—The term

10 ‘United States risk’ means any risk related

11 to property in the United States, or liabil12 ity arising out of activity in, or in connec13 tion with the lives or health of residents of,

14 the United States.

15 ‘‘(ii) RELATED INSURER.—The term

16 ‘related insurer’ means any reinsurer

17 owned or controlled directly or indirectly

18 by the same interests (within the meaning

19 of section 482) as the person making the

20 premium payment.’’

21 (c) TECHNICAL AMENDMENT.—Subparagraph (A) of

22 section 832(b)(5) of such Code is amended by inserting

23 after clause (iii) the following new clause:

24 ‘‘(iv) To the results so obtained, add

25 reinsurance recovered from a related rein-
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1 surer to the extent a deduction for the pre2 mium paid for the reinsurance was dis3 allowed under paragraph (9).’’

4 (d) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to premiums paid after the date

6 that the Committee on Ways and Means of the House of

7 Representatives votes to report this bill.

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