§ 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—
(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—
(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).
(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—
(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—
(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).
(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—
(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—