[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 835 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 835

    To amend the Internal Revenue Code of 1986 with respect to the 
   treatment of effectively connected investment income of insurance 
                               companies.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              June 5, 1997

Mr. Abraham (for himself and Mr. Levin) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 with respect to the 
   treatment of effectively connected investment income of insurance 
                               companies.

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

SECTION 1. FOREIGN COMPANIES CARRYING ON INSURANCE 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 amended by redesignating 
        paragraphs (2), (3), (4), and (5) as paragraphs (6), (7), (8), 
        and (9), respectively, and by striking paragraph (1) and 
        inserting the following new paragraphs:
            ``(1) Recomputation of net investment income.--Each foreign 
        company taxable under part I or part II of this subchapter 
        shall recompute its effectively connected net investment income 
        for any taxable year beginning after December 31, 1996 
        (hereafter in this subsection referred to as the `recomputed 
        year') by making the adjustments specified in paragraph (2) for 
        the second succeeding taxable year (hereafter in the section 
        referred to as the `adjustment year').
            ``(2) Adjustments.--
                    ``(A) Increase where recomputed amount greater.--
                If--
                            ``(i) the recomputed effectively connected 
                        net investment income for the recomputed year, 
                        exceeds
                            ``(ii) the effectively connected net 
                        investment income for such year (determined 
                        without regard to this subsection),
                such excess shall increase the effectively connected 
                net investment income for the adjustment year.
                    ``(B) Decrease where recomputed amount lesser.--
                If--
                            ``(i) the effectively connected net 
                        investment income for the recomputed year 
                        (determined without regard to this subsection), 
                        exceeds
                            ``(ii) the recomputed effectively connected 
                        net investment income for such year,
                such excess shall reduce the effectively connected net 
                investment income for the adjustment year.
                    ``(C) Interest on adjustments.--The foreign company 
                shall pay (or be entitled to receive) 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 applies) were made 
                for the recomputed year.
            ``(3) Recomputed effectively connected net investment 
        income.--For purposes of this subsection, the term `recomputed 
        effectively connected net investment income' means the greater 
        of--
                    ``(A) the cumulative effectively connected net 
                investment income (determined without regard to this 
                subsection) for the recomputed year and all preceding 
                taxable years beginning after December 31, 1996, or
                    ``(B) the cumulative minimum effectively connected 
                net investment income for the recomputed year and such 
                preceding taxable years,
        reduced by the amount of the cumulative recomputed 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 subsection, the term `minimum 
        effectively connected net investment income' means, with 
        respect to any taxable year, the product of--
                    ``(A) the required United States assets of the 
                foreign company, and
                    ``(B) the domestic investment yield applicable to 
                such company for such taxable year.
            ``(5) Effectively connected net investment 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 824(b) of such Code, 
                as redesignated by subsection (a), is amended by 
                striking ``paragraph (1)'' and inserting ``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 deduction 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 taxable 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 investment 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 companies for 
        such taxable year (or where such data is unavailable, such 
        representative data as the Secretary considers appropriate).''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.
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