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USC Title 26 enacted through 2008

§ 842. Foreign companies carrying on insurance business

 
(a)
Taxation under this subchapter
 
If a foreign company carrying on an insurance business within the United States would qualify under part I or II of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such company shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income which is from sources within the United States, such a foreign company shall be taxable as provided in section 881.
 
(b)
Minimum effectively connected net investment income
 
(1)
In general
 
In the case of a foreign company taxable under part I or II of this subchapter for the taxable year, its net investment income for such year which is effectively connected with the conduct of an insurance business within the United States shall be not less than the product of -
 
(A)
the required United States assets of such company, and
 
(B)
the domestic investment yield applicable to such company for such year.
 
(2)
Required U.S. assets
 
(A)
In general
 
For purposes of paragraph (1), the required United States assets of any foreign company for any taxable year is an amount equal to the product of -
 
(i)
the mean of such foreign company's total insurance liabilities on United States business, and
 
(ii)
the domestic asset/liability percentage applicable to such foreign company for such year.
 
(B)
Total insurance liabilities
 
For purposes of this paragraph -
 
(i)
Companies taxable under part I
 
In the case of a company taxable under part I, the term "total insurance liabilities" means the sum of the total reserves (as defined in section 816(c)) plus (to the extent not included in total reserves) the items referred to in paragraphs (3), (4), (5), and (6) of section 807(c).
 
(ii)
Companies taxable under part II
 
In the case of a company taxable under part II, the term "total insurance liabilities" means the sum of unearned premiums and unpaid losses.
 
(C)
Domestic asset/liability percentage
 
The domestic asset/liability percentage applicable for purposes of subparagraph (A)(ii) to any foreign company for any taxable year is a percentage determined by the Secretary on the basis of a ratio -
 
(i)
the numerator of which is the mean of the assets of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and
 
(ii)
the denominator of which is the mean of the total insurance liabilities of the same companies.
 
(3)
Domestic investment yield
 
The domestic investment yield applicable for purposes of paragraph (1)(B) to any foreign company for any taxable year is the percentage determined by the Secretary on the basis of a ratio -
 
(A)
the numerator of which is the net investment income of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and
 
(B)
the denominator of which is the mean of the assets of the same companies.
 
(4)
Election to use worldwide yield
 
(A)
In general
 
If the foreign company makes an election under this paragraph, such company's worldwide current investment yield shall be taken into account in lieu of the domestic investment yield for purposes of paragraph (1)(B).
 
(B)
Worldwide current investment yield
 
For purposes of subparagraph (A), the term "worldwide current investment yield" means the percentage obtained by dividing -
 
(i)
the net investment income of the company from all sources, by
 
(ii)
the mean of all assets of the company (whether or not held in the United States).
 
(C)
Election
 
An election under this paragraph shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
 
(5)
Net investment income
 
For purposes of this subsection, the term "net investment income" means -
 
(A)
gross investment income (within the meaning of section 834(b)), reduced by
 
(B)
expenses allocable to such income.
 
(c)
Special rules for purposes of subsection (b)
 
(1)
Coordination with small life insurance company deduction
 
In the case of a foreign company taxable under part I, subsection (b) shall be applied before computing the small life insurance company deduction.
 
(2)
Reduction in section 881 taxes
 
(A)
In general
 
The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which bears the same ratio to such tax as -
 
(i)
the amount of the increase in effectively connected income of the company resulting from subsection (b), bears to
 
(ii)
the amount which would be subject to tax under section 881 if the amount taxable under such section were determined without regard to sections 103 and 894.
 
(B)
Limitation on reduction
 
The reduction under subparagraph (A) shall not exceed the increase in taxes under part I or II (as the case may be) by reason of the increase in effectively connected income of the company resulting from subsection (b).
 
(3)
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 such representative data with respect to domestic insurance companies for the second preceding taxable year as the Secretary considers appropriate.
 
(d)
Regulations
 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations -
 
(1)
providing for the proper treatment of segregated asset accounts,
 
(2)
providing for proper adjustments in succeeding taxable years where the company's actual net investment income for any taxable year which is effectively connected with the conduct of an insurance business within the United States exceeds the amount required under subsection (b)(1),
 
(3)
providing for the proper treatment of investments in domestic subsidiaries, and
 
(4)
which may provide that, in the case of companies taxable under part II of this subchapter, determinations under subsection (b) will be made separately for categories of such companies established in such regulations.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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Tax Code (Internal Revenue Code) Section Index




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