[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4192 Introduced in House (IH)]







106th CONGRESS
  2d Session
                                H. R. 4192

   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

                             April 5, 2000

 Mrs. Johnson of Connecticut (for herself, Mr. Neal of Massachusetts, 
 and Mr. Matsui) 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.

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

SECTION 1. PREVENTION OF EVASION OF UNITED STATES INCOME TAX ON NONLIFE 
              INSURANCE COMPANIES THROUGH USE OF REINSURANCE WITH 
              FOREIGN PERSONS.

    (a) In General.--Section 845 of the Internal Revenue Code of 1986 
(relating to certain reinsurance agreements) 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 indirectly reinsures a United 
        States risk with a related foreign reinsurer, then, except as 
        provided in paragraph (2)--
                    ``(A) the investment income of the domestic person 
                shall be increased each year by an amount equal to the 
                product of--
                            ``(i) the average of the applicable Federal 
                        mid-term rates determined under section 
                        1274(d)(1) for such year, and
                            ``(ii) the sum of the reserves and/or 
                        liabilities related to the United States risks 
                        ceded to the foreign reinsurer as shown on the 
                        annual statement approved by the National 
                        Association of Insurance Commissioners, 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 foreign reinsurer in its tax 
                return,
                    ``(B) the foreign reinsurer retaining the 
                reinsurance 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 Secretary permits a revocation 
        subject to such conditions 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 purposes of this 
        subsection--
                    ``(A) In general.--The term `related foreign 
                insurer means, with respect to any domestic person, any 
                foreign insurer if such person and insurer are which is 
                owned or controlled directly or indirectly by the same 
                interests (within the meaning of section 482).
                    ``(B) Foreign insurer.--The term `foreign insurer' 
                means any foreign person assuming a United States risk 
                directly or indirectly from a domestic person unless it 
                is established to the satisfaction of the Secretary 
                that the taxable income (determined in accordance with 
                section 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.
                                 <all>