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 in-
come of insurance companies.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. FOREIGN COMPANIES CARRYING ON INSUR-
ANCE BUSINESS.
(a) TREATMENT OF EFFECTIVELY CONNECTED NET
INVESTMENT INCOME OF INSURANCE COMPANIES.—
(1) IN
GENERAL.—Subsection (b) of section
842 of the Internal Revenue Code of 1986 is amend-
ed by redesignating paragraphs (2), (3), (4), and (5)
as paragraphs (6), (7), (8), and (9), respectively,
and by striking paragraph (1) and inserting the fol-
lowing new paragraphs:
‘‘(1) RECOMPUTATION OF NET INVESTMENT IN-
COME.—Each foreign company taxable under part I
or II of this subchapter shall recompute its effec-
tively connected net investment income for any tax-
able year beginning after December 31, 1987 (here-
after in this subsection referred to as the ‘recom-
puted year’) by making the adjustments specified in
paragraph (2) for the second succeeding taxable year
(hereafter in the section referred to as the ‘adjust-
ment year’).
‘‘(2) ADJUSTMENTS.—
‘‘(A) 
INCREASE
WHERE
RECOMPUTED
AMOUNT GREATER.—If—
‘‘(i) the recomputed effectively con-
nected net investment income for the re-
computed year, exceeds
‘‘(ii) the effectively connected net in-
vestment income for such year (determined
without regard to this subsection),
such excess shall increase the effectively con-
nected net investment income for the adjust-
ment year.
‘‘(B) DECREASE
WHERE
RECOMPUTED
AMOUNT LESSER.—If—
‘‘(i) the effectively connected net in-
vestment income for the recomputed year
(determined without regard to this sub-
section), exceeds
‘‘(ii) the recomputed effectively con-
nected net investment income for such
year,
such excess shall reduce the effectively con-
nected net investment income for the adjust-
ment year.
‘‘(C) INTEREST
ON
ADJUSTMENTS.—The
foreign company shall pay (or be entitled to re-
ceive) interest in the amount which would have
been computed under chapter 67 on the
underpayment or overpayment (as the case may
be) which would have resulted if the adjustment
under subparagraph (A) or (B) (whichever ap-
plies) were made for the recomputed year.
‘‘(3) RECOMPUTED EFFECTIVELY CONNECTED
NET
INVESTMENT
INCOME.—For purposes of this
subsection, the term ‘recomputed effectively con-
nected net investment income’ means the greater
of—
‘‘(A) the cumulative effectively connected
net investment income (determined without re-
gard to this subsection) for the recomputed
year and all preceding taxable years beginning
after December 31, 1987, or
‘‘(B) the cumulative minimum effectively
connected net investment income for the recom-
puted year and such preceding taxable years,
reduced by the amount of the cumulative recom-
puted effectively connected net investment income
determined under this subsection for such preceding
taxable years.
‘‘(4) MINIMUM EFFECTIVELY CONNECTED NET
INVESTMENT INCOME.—For purposes of this sub-
section, the term ‘minimum effectively connected net
investment income’ means, with respect to any tax-
able year, the product of—
‘‘(A) the required United States assets of
the foreign company, and
‘‘(B) the domestic investment yield applica-
ble to such company for such taxable year.
‘‘(5) EFFECTIVELY CONNECTED NET INVEST-
MENT INCOME.—For purposes of this subsection, the
term ‘effectively connected net investment income’
means the net investment income which is effectively
connected with the conduct of an insurance business
within the United States.’’
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (6) of section 842(b) of
such Code, as redesignated by subsection (a), is
amended by striking ‘‘paragraph (1)’’ and in-
serting ‘‘paragraph (4)’’.
(B) Paragraph (7) of section 842(b) of
such Code, as redesignated by subsection (a), is
amended by striking ‘‘paragraph (1)(B)’’ and
inserting ‘‘paragraph (4)(B)’’.
(C) Subparagraph (A) of section 842(b)(8)
of such Code, as redesignated by subsection (a),
is amended by striking ‘‘paragraph (1)(B)’’ and
inserting ‘‘paragraph (4)(B)’’.
(D) Paragraph (3) of section 842(c) of
such Code is amended to read as follows:
‘‘(3) ADJUSTMENT OF LIMITATION ON DEDUC-
TION FOR POLICYHOLDER DIVIDENDS IN CASE OF
FOREIGN MUTUAL LIFE INSURANCE COMPANIES.—
For purposes of section 809, the equity base of any
foreign mutual life insurance company as of the
close of any adjustment year shall be increased by
the excess of—
‘‘(A) the required United States assets of
the company for the second preceding taxable
year (determined under subsection (b)(6)), over
‘‘(B) the mean of the assets held in the
United States during the second preceding tax-
able year.’’
(E) Paragraph (4) of section 842(c) of
such Code is amended to read as follows:
‘‘(4) DATA USED IN DETERMINING DOMESTIC
ASSET/LIABILITY PERCENTAGES AND DOMESTIC IN-
VESTMENT
YIELDS.—Each domestic asset/liability
percentage, and each domestic investment yield, for
any taxable year shall be based on representative tax
return data with respect to domestic insurance com-
panies for such taxable year (or where such data is
unavailable, such representative data as the Sec-
retary considers appropriate).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply as if included in the provision of
the Omnibus Budget Reconciliation Act of 1987 to which
they relate.
Æ