Ill STAT. 990 PUBLIC LAW 105-34—AUG. 5, 1997 SEC, 1175. EXEMPTION FOR ACTIVE FINANCING INCOME. (a) EXEMPTION FROM FOREIGN PERSONAL HOLDING COMPANY INCOME.—Section 954 is amended by adding at the end the following new subsection: " (h) SPECIAL RULE FOR INCOME DERIVED IN THE ACTIVE CON- DUCT OF BANKING, FINANCING, OR SIMILAR BUSINESSES.— "(1) IN GENERAL.— For purposes of subsection (c)(1), foreign personal holding company income shall not include income which is— "(A) derived in the active conduct by a controlled foreign corporation of a bemking, financing, or similar business, but only if the corporation is predominantly engaged in the active conduct of such business, "(B) received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from the investments made by a qualifying insurance company of its reserves or of 80 percent of its xineamed premiums (as both are determined in the manner prescribed under paragraph (4)), or "(C) received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from investments made by a qualifying insurance company of an amount of its assets equal to— "(i) in the case of^contracts regulated in the country in which sold as property, casualty, or health insurance contracts, one-third of its premiums earned on such insurance contracts during the taxable year (as defined in section 832(b)(4)), and "(ii) in the case of contracts regulated in the country in which sold as life insurance or annuity contracts, the greater of— "(I) 10 percent of the reserves described in subparagraph (B) for such contracts, or "(II) in the case of a qualifying insurance company which is a start-up company, $10,000,000. " (2) PRINCIPLES FOR DETERMINING APPLICABLE INCOME.— "(A) BANKING AND FINANCING INCOME.— The determination as to whether income is described in paragraph (1)(A) shall be made— "(i) except as provided in clause (ii), in accordance with the applicable principles of section 904(d)(2)(C)(ii), except that such income shall include income from all leases entered into in the ordinary course of the active conduct of a banking, financing, or similar business, and "(ii) in the case of a corporation described in paragraph (3)(B), in accordance with the applicable principles of section 1296(b) (as in effect on the day before the enactment of the Taxpayer Relief Act of 1997) for determining what is not passive income. "(B) INSURANCE INCOME.—Under rules prescribed by the Secretary, for purposes of paragraphs (1)(B) and (C)— "(i) in the case of contracts which are sepsirate account-type contracts (including variable contracts not meeting the requirements of section 817), only income specifically allocable to such contracts shall be taken into account, and
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