§ 1297.
(a)
In general
For purposes of this part, except as otherwise provided in this subpart, the term “passive foreign investment company” means any foreign corporation if—
(1)
75 percent or more of the gross income of such corporation for the taxable year is passive income, or
(2)
the average percentage of assets (as determined in accordance with subsection (e)) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.
(c)
Look-thru in the case of 25-percent owned corporations
If a foreign corporation owns (directly or indirectly) at least 25 percent (by value) of the stock of another corporation, for purposes of determining whether such foreign corporation is a passive foreign investment company, such foreign corporation shall be treated as if it—
(1)
held its proportionate share of the assets of such other corporation, and
(2)
received directly its proportionate share of the income of such other corporation.
(e)
Methods for measuring assets
(1)
Determination using value
The determination under subsection (a)(2) shall be made on the basis of the value of the assets of a foreign corporation if—
(A)
such corporation is a publicly traded corporation for the taxable year, or
(B)
paragraph (2) does not apply to such corporation for the taxable year.
(2)
Determination using adjusted bases
The determination under subsection (a)(2) shall be based on the adjusted bases (as determined for the purposes of computing earnings and profits) of the assets of a foreign corporation if such corporation is not described in paragraph (1)(A) and such corporation—
(A)
is a controlled foreign corporation, or
(B)
elects the application of this paragraph.
An election under subparagraph (B), once made, may be revoked only with the consent of the Secretary.
(3)
Publicly traded corporation
For purposes of this subsection, a foreign corporation shall be treated as a publicly traded corporation if the stock in the corporation is regularly traded on—
(A)
a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or
(B)
any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this subsection.
(f)
Qualifying insurance corporation
For purposes of subsection (b)(2)(B)—
(1)
In general
The term “qualifying insurance corporation” means, with respect to any taxable year, a foreign corporation—
(A)
which would be subject to tax under subchapter L if such corporation were a domestic corporation, and
(B)
the applicable insurance liabilities of which constitute more than 25 percent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s applicable financial statement for the last year ending with or within the taxable year.
(2)
Alternative facts and circumstances test for certain corporations
If a corporation fails to qualify as a qualified insurance corporation under paragraph (1) solely because the percentage determined under paragraph (1)(B) is 25 percent or less, a United States person that owns stock in such corporation may elect to treat such stock as stock of a qualifying insurance corporation if—
(A)
the percentage so determined for the corporation is at least 10 percent, and
(B)
under regulations provided by the Secretary, based on the applicable facts and circumstances—
(i)
the corporation is predominantly engaged in an insurance business, and
(ii)
such failure is due solely to runoff-related or rating-related circumstances involving such insurance business.
(3)
Applicable insurance liabilities
For purposes of this subsection—
(A)
In general
The term “applicable insurance liabilities” means, with respect to any life or property and casualty insurance business—
(i)
loss and loss adjustment expenses, and
(ii)
reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks.
(B)
Limitations on amount of liabilities
Any amount determined under clause (i) or (ii) of subparagraph (A) shall not exceed the lesser of such amount—
(i)
as reported to the applicable insurance regulatory body in the applicable financial statement described in paragraph (4)(A) (or, if less, the amount required by applicable law or regulation), or
(ii)
as determined under regulations prescribed by the Secretary.
(4)
Other definitions and rules
For purposes of this subsection—
(A)
Applicable financial statement
The term “applicable financial statement” means a statement for financial reporting purposes which—
(i)
is made on the basis of generally accepted accounting principles,
(ii)
is made on the basis of international financial reporting standards, but only if there is no statement that meets the requirement of clause (i), or
(iii)
except as otherwise provided by the Secretary in regulations, is the annual statement which is required to be filed with the applicable insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii).
(B)
Applicable insurance regulatory body
(Added [Pub. L. 99–514, title XII, § 1235(a)], Oct. 22, 1986, [100 Stat. 2572], § 1296; amended [Pub. L. 100–647, title I], §§ 1012(p)(2), (5), (16), (26), (27), 1018(u)(40), Nov. 10, 1988, [102 Stat. 3515], 3518–3520, 3592; [Pub. L. 103–66, title XIII, § 13231(d)(1)], (3), Aug. 10, 1993, [107 Stat. 499]; [Pub. L. 104–188, title I, § 1704(r)(1)], Aug. 20, 1996, [110 Stat. 1887]; renumbered § 1297 and amended [Pub. L. 105–34, title XI], §§ 1121, 1122(a), (d)(4), 1123, Aug. 5, 1997, [111 Stat. 971], 972, 977; [Pub. L. 105–206, title VI, § 6011(b)(1)], (d), July 22, 1998, [112 Stat. 817], 818; [Pub. L. 110–172, § 11(a)(24)(A)], (g)(18), Dec. 29, 2007, [121 Stat. 2486], 2491; [Pub. L. 115–97, title I, § 14501(a)], (b), Dec. 22, 2017, [131 Stat. 2234].)