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In addition, the calculation of the investment yield under
section 842(b)(4) is substantially similar to the computation
under prior section 819(a). The earnings rate of section
819(a)(1)(B) was determined by dividing the investment yield for
the entire company (not just the U.S. branch) by the mean of all
the company's assets.3 The election available to taxpayers under
section 842(b)(4) also calculates investment yield using the
company's own worldwide figures.4 Section 842(b)(4) calculates
the company's worldwide investment yield by dividing the net
investment income of the company from all sources by the mean of
all the company's assets. Therefore, section 842(b) is
substantially similar to the historic approach in both the manner
in which assets are imputed and the calculation of investment
yield.
Three years after the effective date of the Treaty, Congress
enacted section 842(b) to replace section 813. The conference
report regarding enactment of section 842(b) indicates that the
Treasury Department and Congress carefully considered existing
3The current earnings rate for sec. 819(a)(1)(B) was defined
in sec. 805(b)(2).
4As explained in the House committee report, "The committee
adopted the worldwide yield alternative to avoid discriminating
against foreign companies whose investment performance does not
attain the U.S. average." H. Rept. 100-391 (Part 2), at 1110
(1987). If the taxpayer does not make this election to use its
own investment yield, sec. 842(b)(3) requires use of the
investment yield of domestic insurance companies.
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