26 U.S.C. § 842 — Foreign companies carrying on insurance

Page 1942 TITLE 26—INTERNAL REVENUE CODE § 841 1956—Act Mar. 13, 1956, ch. 83, § 4(b), 70 Stat. 49, added item 843. § 841. Credit for foreign taxes The taxes imposed by foreign countries or pos- sessions of the United States shall be allowed as a credit against the tax of a domestic insurance company subject to the tax imposed by section 801 or 831, to the extent provided in the case of a domestic corporation in section 901 (relating to foreign tax credit). For purposes of the pre- ceding sentence (and for purposes of applying section 906 with respect to a foreign corporation subject to tax under this subchapter), the term ‘‘taxable income’’ as used in section 904 means— (1) in the case of the tax imposed by section 801, the life insurance company taxable in- come (as defined in section 801(b)), and (2) in the case of the tax imposed by section 831, the taxable income (as defined in section 832(a)). (Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, § 5(4), 70 Stat. 49; Pub. L. 86–69, § 3(b), June 25, 1959, 73 Stat. 139; Pub. L. 87–834, § 8(g)(1), Oct. 16, 1962, 76 Stat. 998; Pub. L. 89–809, title I, § 104(i)(8), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 98–369, div. A, title II, § 211(b)(10), July 18, 1984, 98 Stat. 755; Pub. L. 99–514, title X, § 1024(c)(10), Oct. 22, 1986, 100 Stat. 2407.) Editorial Notes AMENDMENTS 1986—Pub. L. 99–514 substituted ‘‘section 801 or 831’’ for ‘‘section 801, 821, or 831’’ in introductory provisions, redesignated par. (3) as (2), and struck out former par. (2) which read as follows: ‘‘in the case of the tax im- posed by section 821(a), the mutual insurance company taxable income (as defined in section 821(b)); and in the case of the tax imposed by section 821(c), the taxable investment income (as defined in section 822(a)), and’’. 1984—Pub. L. 98–369 substituted ‘‘section 801’’ for ‘‘section 802’’, wherever appearing, and ‘‘section 801(b)’’ for ‘‘section 802(b)’’. 1966—Pub. L. 89–809 substituted ‘‘For purposes of the preceding sentence (and for purposes of applying sec- tion 906 with respect to a foreign corporation subject to tax under this subchapter), the term ‘taxable income’ as used in section 904’’ for ‘‘For purposes of the pre- ceding sentence, the term ‘taxable income’ as used in section 904’’. 1962—Pub. L. 87–834 added par. (2) and redesignated former par. (2) as (3). 1959—Pub. L. 86–69 struck out reference to section 811 of this title in first sentence, and substituted ‘‘section 802, the life insurance company taxable income (as de- fined in section 802(b)), and’’ for ‘‘section 802 or 811, the net investment income (as defined in section 803(c))’’ in par. (1). 1956—Act Mar. 13, 1956, inserted references to section 811. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 1024(e) of Pub. L. 99–514, set out as a note under section 831 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 98–369, set out as an Effective Date note under section 801 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Amendment by Pub. L. 89–809 applicable with respect to taxable years beginning after Dec. 31, 1966, see sec- tion 104(n) of Pub. L. 89–809, set out as a note under sec- tion 11 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment by Pub. L. 87–834 applicable with respect to taxable years beginning after Dec. 31, 1962, see sec- tion 8(h) of Pub. L. 87–834, set out as a note under sec- tion 501 of this title. EFFECTIVE DATE OF 1959 AMENDMENT Amendment by Pub. L. 86–69 applicable only with re- spect to taxable years beginning after Dec. 31, 1957, see section 4 of Pub. L. 86–69, set out as a note under sec- tion 381 of this title. EFFECTIVE DATE OF 1956 AMENDMENT Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under section 316 of this title. § 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 tax- able year if (without regard to income not effec- tively 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 effec- tively connected with its conduct of any trade or business within the United States. With re- spect 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 invest- ment 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 applica- ble 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 percent- age applicable to such foreign company for such year. (B) Total insurance liabilities For purposes of this paragraph— Page 1943 TITLE 26—INTERNAL REVENUE CODE § 842 (i) Companies taxable under part I In the case of a company taxable under part I, the term ‘‘total insurance liabil- ities’’ 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 liabil- ities’’ means the sum of unearned pre- miums and unpaid losses. (C) Domestic asset/liability percentage The domestic asset/liability percentage ap- plicable 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 compa- nies 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 percent- age determined by the Secretary on the basis of a ratio— (A) the numerator of which is the net in- vestment income of domestic insurance com- panies 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 world- wide current investment yield shall be taken into account in lieu of the domestic invest- ment 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 com- pany (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 re- voked 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) 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 effec- tively 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 tax- able 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). (2) Data used in determining domestic asset/li- ability percentages and domestic invest- ment yields Each domestic asset/liability percentage, and each domestic investment yield, for any taxable year shall be based on such represent- ative 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 regula- tions— (1) providing for the proper treatment of seg- regated asset accounts, (2) providing for proper adjustments in suc- ceeding taxable years where the company’s ac- tual 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 in- vestments in domestic subsidiaries, and (4) which may provide that, in the case of companies taxable under part II of this sub- chapter, determinations under subsection (b) will be made separately for categories of such companies established in such regulations. (Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, § 5(5), 70 Stat. 49; Pub. L. 86–69, § 3(f)(1), June 25, 1959, 73 Stat. 140; Pub. L. 89–809, title I, § 104(i)(1), Nov. 13, 1966, 80 Stat. 1561; Pub. L. 99–514, title X, § 1024(c)(11), Oct. 22, 1986, 100 Stat. 2408; Pub. L. 100–203, title X, § 10242(a), Dec. 22, 1987, 101 Stat. 1330–420; Pub. L. 100–647, title II, § 2004(q)(2), (3), Nov. 10, 1988, 102 Stat. 3609; Pub. L. 101–239, title VII, § 7821(d)(2), Dec. 19, 1989, 103 Stat. 2424; Pub. L. 108–218, title II, § 205(b)(6), Apr. 10, 2004, 118 Stat. 610; Pub. L. 115–97, title I, § 13512(b)(7), Dec. 22, 2017, 131 Stat. 2143.) Editorial Notes AMENDMENTS 2017—Subsec. (c). Pub. L. 115–97 redesignated pars. (2) and (3) as (1) and (2), respectively, and struck out Page 1944 TITLE 26—INTERNAL REVENUE CODE § 843 former par. (1). Prior to amendment, text of par. (1) read as follows: ‘‘In the case of a foreign company tax- able under part I, subsection (b) shall be applied before computing the small life insurance company deduc- tion.’’ 2004—Subsec. (c)(3), (4). Pub. L. 108–218 redesignated par. (4) as (3) and struck out heading and text of former par. (3). Text read as follows: ‘‘For purposes of section 809, the equity base of any foreign mutual life insur- ance company as of the close of any taxable year shall be increased by the excess of— ‘‘(A) the required United States assets of the com- pany (determined under subsection (b)(2)), over ‘‘(B) the mean of the assets held in the United States during the taxable year.’’ 1989—Subsec. (c)(4). Pub. L. 101–239 substituted ‘‘yields’’ for ‘‘yeilds’’ in heading. 1988—Subsec. (b)(3)(B). Pub. L. 100–647, § 2004(q)(2)(A), struck out ‘‘held for the production of such income’’ after ‘‘same companies’’. Subsec. (b)(4)(B)(ii). Pub. L. 100–647, § 2004(q)(2)(B), struck out ‘‘held for the production of investment in- come’’ after ‘‘United States)’’. Subsec. (d)(4). Pub. L. 100–647, § 2004(q)(3), added par. (4). 1987—Pub. L. 100–203 substituted ‘‘companies’’ for ‘‘corporations’’ in section catchline and amended text generally. Prior to amendment, text read as follows: ‘‘If a foreign corporation 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 re- gard to income not effectively connected with the con- duct of any trade or business within the United States) it were a domestic corporation, such corporation 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 remain- der of its income, which is from sources within the United States, such a foreign corporation shall be tax- able as provided in section 881.’’ 1986—Pub. L. 99–514 struck out reference to part III of this subchapter. 1966—Pub. L. 89–809 substituted provisions covering the taxability of foreign corporations that are carrying on an insurance business within the United States which would qualify under part I, II, or III of this sub- chapter for the taxable year if (without regard to in- come not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation for provisions that the gross in- come of insurance companies subject to the tax im- posed by section 802 or 831 shall not be determined in the manner provided in part I of subchapter N (relating to determination of sources of income). 1959—Pub. L. 86–69 struck out reference to section 811. 1956—Act Mar. 13, 1956, inserted reference to section 811. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13512(c) of Pub. L. 115–97, set out as a note under section 453B of this title. EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–218 applicable to taxable years beginning after Dec. 31, 2004, see section 205(c) of Pub. L. 108–218, set out as a note under section 807 of this title. EFFECTIVE DATE OF 1989 AMENDMENT Amendment by Pub. L. 101–239 effective as if included in the provision of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 7823 of Pub. L. 101–239, set out as a note under section 26 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title. EFFECTIVE DATE OF 1987 AMENDMENT Amendment by Pub. L. 100–203 applicable to taxable years beginning after Dec. 31, 1987, see section 10242(d) of Pub. L. 100–203, set out as a note under section 816 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 1024(e) of Pub. L. 99–514, set out as a note under section 831 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Amendment by Pub. L. 89–809 with respect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89–809, set out as a note under section 11 of this title. EFFECTIVE DATE OF 1959 AMENDMENT Amendment by Pub. L. 86–69 applicable only with re- spect to taxable years beginning after Dec. 31, 1957, see section 4 of Pub. L. 86–69, set out as a note under sec- tion 381 of this title. EFFECTIVE DATE OF 1956 AMENDMENT Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under section 316 of this title. STUDY OF UNITED STATES REINSURANCE INDUSTRY Pub. L. 99–514, title XII, § 1244, Oct. 22, 1986, 100 Stat. 2581, directed Secretary of the Treasury or his delegate to conduct a study to determine whether United States reinsurance corporations are placed at a significant competitive disadvantage with foreign reinsurance cor- porations by existing treaties between the United States and foreign countries, and to report before Jan. 1, 1988, the results of such study to Committee on Fi- nance of United States Senate and Committee on Ways and Means of House of Representatives. § 843. Annual accounting period For purposes of this subtitle, the annual ac- counting period for each insurance company subject to a tax imposed by this subchapter shall be the calendar year. Under regulations prescribed by the Secretary, an insurance com- pany which joins in the filing of a consolidated return (or is required to so file) may adopt the taxable year of the common parent corporation even though such year is not a calendar year. (Added Mar. 13, 1956, ch. 83, § 4(a), 70 Stat. 48; amended Pub. L. 94–455, title XV, § 1507(b)(2), Oct. 4, 1976, 90 Stat. 1740.) Editorial Notes AMENDMENTS 1976—Pub. L. 94–455 inserted provision permitting an insurance company which joins in the filing of a con- solidated return to adopt the taxable year of the com- mon parent corporation even though such year is not a calendar year. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94–455 applicable to taxable years beginning after Dec. 31, 1980, see section 1507(c)(1)