ments) is amended by adding at the end the following new
subsection:
‘‘(c) TREATMENT OF REINSURANCE WITH RELATED
FOREIGN INSURERS.—
‘‘(1) IN
GENERAL.—For purposes of part II
this subchapter, if a domestic person directly or indi-
rectly reinsures a United States risk with a related
foreign reinsurer, then, except as provided in para-
graph (2)—
‘‘(A) the investment income of the domes-
tic person shall be increased each year by an
amount equal to the product of—
‘‘(i) the average of the applicable Fed-
eral mid-term rates determined under sec-
tion 1274(d)(1) for such year, and
‘‘(ii) the sum of the reserves and/or li-
abilities related to the United States risks
ceded to the foreign reinsurer as shown on
the annual statement approved by the Na-
tional Association of Insurance Commis-
sioners, and
‘‘(B) the excise tax imposed by section
4371 shall not apply to reinsurance premiums
paid by such domestic person to such foreign
reinsurer.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to the extent—
‘‘(A) 1 or more domestic corporations or
United States individuals include under subpart
F the income attributable to the reinsurance of
the United States risks ceded to the related for-
eign reinsurer in its tax return,
‘‘(B) the foreign reinsurer retaining the re-
insurance includes the income attributable to
the reinsurance of the United States risks ceded
to the related foreign reinsurer in its tax return
pursuant to an election under section 953(d) or
as income effectively connected with a United
States trade or business, or
‘‘(C) the foreign reinsurer elects, in such
manner and pursuant to such regulations as the
Secretary may prescribe, to file a tax return
and pay tax on the income attributable to all
reinsurance of United States risks ceded to the
foreign reinsurer by related domestic persons as
if such income were effectively connected with a
United States trade or business.
Once made, the election described in subparagraph
(C) shall be binding for all subsequent taxable years
unless, upon application by the taxpayer, the Sec-
retary permits a revocation subject to such condi-
tions as the Secretary may deem necessary.
‘‘(3) UNITED STATES RISK.—For purposes of
this subsection, the term ‘United States risk’ means
any risk related to property in the United States, or
liability arising out of activity in, or in connection
with the lives or health of residents of, the United
States.
‘‘(4) RELATED FOREIGN INSURER.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘related for-
eign insurer means, with respect to any domes-
tic person, any foreign insurer if such person
and insurer are which is owned or controlled di-
rectly or indirectly by the same interests (within
the meaning of section 482).
‘‘(B) FOREIGN INSURER.—The term ‘for-
eign insurer’ means any foreign person assum-
ing a United States risk directly or indirectly
from a domestic person unless it is established
to the satisfaction of the Secretary that the tax-
able income (determined in accordance with sec-
tion 832(a)) attributable to the reinsurance of
United States risks is subject to an effective
rate of income tax imposed by a foreign country
greater than 20 percent of the maximum rate
of tax specified in section 11.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years ending after the
date of enactment of this Act.
Æ