tracts shall be determined using the same meth-
ods and interest rates which would be used if
such company were subject to tax under sub-
chapter L.
‘‘(B) LIFE INSURANCE AND ANNUITY CON-
TRACTS.—The amount of the reserve of a qualify-
ing insurance company for any life insurance or
annuity contract shall be equal to the greater
of—
‘‘(i) the net surrender value of such
contract 
(as 
defined 
in 
section
807(e)(1)(A)), or
‘‘(ii) the reserve determined under
paragraph (5).
‘‘(C) LIMITATION
ON
RESERVES.—In no
event shall the reserve determined under this
paragraph for any contract as of any time ex-
ceed the amount which would be taken into ac-
count with respect to such contract as of such
time in determining foreign statement reserves
(less any catastrophe, deficiency, or similar re-
serves).
‘‘(5) AMOUNT OF RESERVE.—The amount of the
reserve determined under this paragraph with respect
to any contract shall be determined in the same man-
ner as it would be determined if the qualifying insur-
ance company were subject to tax under subchapter L,
except that in applying such subchapter—
‘‘(A) the interest rate determined for the for-
eign country in which such company is created
or organized and which, except as provided by
the Secretary, is calculated in the same manner
as the Federal mid-term rate under section
1274(d) shall be substituted for the applicable
Federal interest rate,
‘‘(B) the highest assumed interest rate per-
mitted to be used in determining foreign state-
ment reserves shall be substituted for the prevail-
ing State assumed interest rate, and
‘‘(C) tables for mortality and morbidity
which reasonably reflect the current mortality
and morbidity risks in the foreign country shall
be substituted for the mortality and morbidity
tables otherwise used for such subchapter.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) QUALIFYING INSURANCE COMPANY.—
The term ‘qualifying insurance company’ means
any entity which—
‘‘(i) is subject to regulation as an in-
surance company by the country under the
laws of which the entity is created or orga-
nized,
‘‘(ii) derives at least 50 percent of its
net written premiums from the insurance or
reinsurance of risks located within such
country, and
‘‘(iii) is engaged in the active conduct
of an insurance business and would be sub-
ject to tax under subchapter L if it were a
domestic corporation.
‘‘(B) LIFE
INSURANCE
OR
ANNUITY
CON-
TRACT.—For purposes of this section and section
953, the determination of whether a contract is-
sued by a controlled foreign corporation is a life
insurance contract or an annuity contract shall
be made without regard to sections 72(s), 101(f),
817(h), and 7702 if—
‘‘(i) such contract is regulated as a life
insurance or annuity contract by the coun-
try under the laws of which the corporation
is created or organized, and
‘‘(ii) no policyholder, insured, annu-
itant, or beneficiary with respect to the con-
tract is a United States person.
‘‘(C) 
NONCANCELLABLE
ACCIDENT
AND
HEALTH
INSURANCE
CONTRACTS.—A
noncancellable accident and health insurance
contract shall be treated for purposes of this sub-
section in the same manner as a life insurance
contract except that paragraph (4)(B)(i) shall
not apply.
‘‘(D) LOCATED.—
‘‘(i) IN GENERAL.—The determination
of where a customer is located shall be made
under rules prescribed by the Secretary.
‘‘(ii) SPECIAL
RULE
FOR
QUALIFIED
BUSINESS UNITS.—Gross income derived by
a corporation’s qualified business unit
(within the meaning of section 989(a)) from
transactions with customers which are lo-
cated in the country in which the qualified
business unit both maintains its principal
office and conducts substantial business ac-
tivity shall be treated as derived from trans-
actions with customers which are located
within the country under the laws of which
the controlled foreign corporation is created
or organized.
‘‘(E) CUSTOMER.—
‘‘(i) IN
GENERAL.—The term ‘cus-
tomer’ means, with respect to any controlled
foreign corporation, any person which has a
customer relationship with such corpora-
tion.
‘‘(ii) EXCEPTION FOR RELATED, ETC.
PERSONS.—A person who is a related per-
son (as defined in subsection (d)(3)), an of-
ficer, a director, or an employee with re-
spect to any controlled foreign corporation
shall not be treated as a customer with re-
spect to any transaction if a principal pur-
pose of such transaction is to satisfy any re-
quirement of this subsection.
‘‘(7) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection and subsection (c)(2)(C)(ii),
there shall be disregarded any item of income, gain,
loss, or deduction with respect to any transaction or
series of transactions one of the principal purposes of
which is qualifying income or gain for the exclusion
under this section, including—
‘‘(A) any change in the method of comput-
ing reserves or any other transaction or series of
transactions a principal purpose of which is the
acceleration or deferral of any item in order to
claim the benefits of such exclusion through the
application of this subsection, and
‘‘(B) organizing entities in order to satisfy
any same country requirement under this sub-
section.
‘‘(8) COORDINATION WITH OTHER PROVISIONS.—
‘‘(A) SECTION 901(k).—
‘‘(i) IN
GENERAL.—The amount of
qualified taxes (as defined in section
901(k)(4)) to which paragraphs (1) and (2)
of section 901(k) do not apply by reason of
paragraph (4) of such section 901(k) shall
be reduced by an amount which bears the
same ratio to such qualified taxes as the
amount of income from the active conduct
of a securities business which is not subpart
F income solely by reason of this subsection,
subsection 
(c)(2)(C)(ii), 
and 
subsection
(e)(2)(C) bears to the total income from the
active conduct of a securities business by a
controlled foreign corporation which is not
‘‘(ii) PREDECESSOR.—Any reference in
this paragraph to a cooperative or processor
shall be treated as including a reference to
any predecessor thereof.
‘‘(3) COOPERATIVE MUST HOLD 100 PERCENT OF
STOCK AFTER SALE.—The eligible farmers’ coopera-
tive owns, immediately after the sale, all of the quali-
fied agricultural processor stock of the corporation.
‘‘(4) WRITTEN
STATEMENT
AND
HOLDING
PE-
RIOD.—Requirements similar to the requirements of
paragraphs (3) and (4) of section 1042(b) are met.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) 
QUALIFIED
AGRICULTURAL
PROCESSOR
STOCK.—The term ‘qualified agricultural processor
stock’ means stock (other than stock described in sec-
tion 1504(a)(4)) issued by a qualified agricultural
processor.
‘‘(2) QUALIFIED
AGRICULTURAL
PROCESSOR.—
The term ‘qualified agricultural processor’ means a
domestic C corporation substantially all of the assets
of which are used in the active conduct of the trade
or business of refining or processing agricultural or
horticultural products in the United States.
‘‘(3) ELIGIBLE
FARMERS’ COOPERATIVE.—The
term ‘eligible farmers’ cooperative’ means an organi-