[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 3424 Introduced in Senate (IS)]

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114th CONGRESS
  2d Session
                                S. 3424

To amend the Internal Revenue Code of 1986 to prevent the avoidance of 
     tax by insurance companies through reinsurance with non-taxed 
                              affiliates.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 28, 2016

  Mr. Warner 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 to prevent the avoidance of 
     tax by insurance companies through reinsurance with non-taxed 
                              affiliates.

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

SECTION 1. PREVENTION OF AVOIDANCE OF TAX THROUGH REINSURANCE WITH NON-
              TAXED AFFILIATES.

    (a) In General.--Part III of subchapter L of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON-LIFE CONTRACTS WITH 
              NON-TAXED AFFILIATES.

    ``(a) In General.--The taxable income under section 831(a) or the 
life insurance company taxable income under section 801(b) (as the case 
may be) of an insurance company shall be determined by not taking into 
account--
            ``(1) any non-taxed reinsurance premium,
            ``(2) any additional amount paid by such insurance company 
        with respect to the reinsurance for which such non-taxed 
        reinsurance premium is paid, to the extent such additional 
        amount is properly allocable to such non-taxed reinsurance 
        premium, and
            ``(3) any return premium, ceding commission, reinsurance 
        recovered, or other amount received by such insurance company 
        with respect to the reinsurance for which such non-taxed 
        reinsurance premium is paid, to the extent such return premium, 
        ceding commission, reinsurance recovered, or other amount is 
        properly allocable to such non-taxed reinsurance premium.
    ``(b) Non-Taxed Reinsurance Premiums.--For purposes of this 
section--
            ``(1) In general.--The term `non-taxed reinsurance premium' 
        means any reinsurance premium paid directly or indirectly to an 
        affiliated corporation with respect to reinsurance of risks 
        (other than excepted risks), to the extent that the income 
        attributable to the premium is not subject to tax under this 
        subtitle (either as the income of the affiliated corporation or 
        as amounts included in gross income by a United States 
        shareholder under section 951).
            ``(2) Excepted risks.--The term `excepted risks' means any 
        risk with respect to which reserves described in section 
        816(b)(1) are established.
    ``(c) Affiliated Corporations.--For purposes of this section, a 
corporation shall be treated as affiliated with an insurance company if 
both corporations would be members of the same controlled group of 
corporations (as defined in section 1563(a)) if section 1563 were 
applied--
            ``(1) by substituting `at least 50 percent' for `at least 
        80 percent' each place it appears in subsection (a)(1), and
            ``(2) without regard to subsections (a)(4), (b)(2)(C), 
        (b)(2)(D), and (e)(3)(C).
    ``(d) Election To Treat Reinsurance Income as Effectively 
Connected.--
            ``(1) In general.--A specified affiliated corporation may 
        elect for any taxable year to treat specified reinsurance 
        income as--
                    ``(A) income effectively connected with the conduct 
                of a trade or business in the United States, and
                    ``(B) for purposes of any treaty between the United 
                States and any foreign country, income attributable to 
                a permanent establishment in the United States.
            ``(2) Effect of election.--In the case of any specified 
        reinsurance income with respect to which the election under 
        this subsection applies--
                    ``(A) Deduction allowed for reinsurance premiums.--
                For exemption from subsection (a), see definition of 
                non-taxed reinsurance premiums in subsection (b).
                    ``(B) Exception from excise tax.--The tax imposed 
                by section 4371 shall not apply with respect to any 
                income treated as effectively connected with the 
                conduct of a trade or business in the United States 
                under paragraph (1).
                    ``(C) Taxation under this subchapter.--Such income 
                shall be subject to tax under this subchapter to the 
                same extent and in the same manner as if such income 
                were the income of a domestic insurance company.
                    ``(D) Coordination with foreign tax credit 
                provisions.--For purposes of subpart A of part III of 
                subchapter N and sections 78 and 960--
                            ``(i) such specified reinsurance income 
                        shall be treated as derived from sources 
                        without the United States, and
                            ``(ii) subsections (a), (b), and (c) of 
                        section 904 and sections 902, 907, and 960 
                        shall be applied separately with respect to 
                        each item of such income.
                The Secretary may issue regulations or other guidance 
                which provide that related items of specified 
                reinsurance income may be aggregated for purposes of 
                applying clause (ii).
            ``(3) Specified affiliated corporation.--For purposes of 
        this subsection, the term `specified affiliated corporation' 
        means any affiliated corporation which is a foreign corporation 
        and which meets such requirements as the Secretary shall 
        prescribe to ensure that tax on the specified reinsurance 
        income of such corporation is properly determined and paid.
            ``(4) Specified reinsurance income.--For purposes of this 
        paragraph, the term `specified reinsurance income' means all 
        income of a specified affiliated corporation which is 
        attributable to reinsurance with respect to which subsection 
        (a) would (but for the election under this subsection) apply.
            ``(5) Rules related to election.--Any election under 
        paragraph (1) shall--
                    ``(A) be made at such time and in such form and 
                manner as the Secretary may provide, and
                    ``(B) apply for the taxable year for which made and 
                all subsequent taxable years unless revoked with the 
                consent of the Secretary.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as may be appropriate to carry out, or to prevent the 
avoidance of the purposes of, this section, including regulations or 
other guidance which provide for the application of this section to 
alternative reinsurance transactions, fronting transactions, conduit 
and reciprocal transactions, and any economically equivalent 
transactions.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter L of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 849. Special rules for reinsurance of non-life contracts with 
                            non-taxed affiliates.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2016.
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