112 STAT. 2681-897 PUBLIC LAW 105-277—OCT. 21, 1998 insurance company in order to clearly reflect the income of such branches, and "(F) premiums from a contract shall not be taken into account for purposes of paragraph (2)(B) or (3) if such contract reinsures a contract issued or reinsured by a related person (as defined in section 954(d)(3)). For purposes of subparagraph (D), the determination of where risks are located shall be made under the principles of section 953. "(8) COORDINATION WITH SUBSECTION (c).— In determining insurance income for purposes of subsection (c), exempt insurance income shall not include income derived from exempt contracts which cover risks other than applicable home country risks. "(9) REGULATIONS.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection and section 954(i). "(10) APPLICATION. —T his subsection and section 954(i) shall apply only to the first taxable year of a foreign corporation beginning after December 31, 1998, and before January 1, 2000, and to taxable years of United States shareholders with or within which such taxable year of such foreign corporation ends. " (11) CROSS REFERENCE. — Tor income exempt from foreign personal holding company income, see section 954(i).". (2) EXEMPTION FROM FOREIGN PERSONAL HOLDING COMPANY INCOME.—Section 954 (defining foreign base company income) is amended by adding at the end the following new subsection: " (i) SPECIAL RULE FOR INCOME DERIVED IN THE ACTIVE CON- DUCT OF INSURANCE BUSINESS.— "(1) IN GENERAL.— For purposes of subsection (c)(1), foreign personal holding company income shall not include qualified insurance income of a qualifying insurance company. "(2) QUALIFIED INSURANCE INCOME. —The term 'quahfied insurance income' means income of a qualifying insurance company which is— "(A) 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 or a qualifying insurance company branch of its reserves allocable to exempt contracts or of 80 percent of its unearned premiums from exempt contracts (as both are determined in the manner prescribed under paragraph (4)), or "(B) 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 or a qualifying insurance company branch of an amount of its assets allocable to exempt contracts equal to— "(i) in the case of 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 life insurance or annuity contracts, 10 percent of the reserves described in subparagraph (A) for such contracts.
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