FROM THE OFFICE OF PUBLIC AFFAIRS
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June 24, 2004
JS-1742
Treasury Issues Guidance on Determination of
U.S. Income of Foreign Insurance Companies
Today the Treasury Department and the Internal Revenue Service issued proposed regulations relating to the tax treatment of foreign insurance companies with U.S. insurance operations.
A foreign company with U.S. operations is subject to U.S. tax on the portion of its income attributable to such operations. U.S.-source income or gains are considered attributable to a U.S. business if the income or gains are derived from assets used by the company in such business or if the activities of the company's business are a material factor in the realization of such income or gains. Stock investments generally are not considered assets used in a business.
Insurance companies make investments, including stock investments, as part of their business in order to fund their obligations to policy holders and satisfy regulatory capital requirements. In light of these circumstances, the proposed regulations, when finalized, would provide that portfolio stock investments of a foreign insurance company are excluded from the general rule that stock is not an asset held for use in a company's business. Under these regulations, a foreign insurance company's portfolio stock investments may be considered assets used in the company's U.S. business and therefore such stock investments may produce income that is subject to U.S. tax.
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