The Internal Revenue Service has proposed a regulation that could cut foreign insurers’ U.S. income taxes.[@@]
The proposed regulation would let foreign insurers that do business in the United States treat much of the income that their stock holdings generate as trade-related income.
If a foreign insurer owned less than 10% of the stock of a U.S. company, it could treat earnings on that stock as trade-related income.
If a foreign insurer owned at least 10% of the stock of a U.S. company, it would have to continue to treat earnings on that stock as general “fixed or determinable, annual or periodical income.”
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Today, foreign insurers with U.S. operations usually have to treat all income earned on U.S. stocks as FDAP income, according to a discussion of the proposed regulation that appears in today’s issue of the Federal Register.
Tougher accounting rules and a higher tax rate often apply to FDAP income.
Mark Matthews, an IRS official, notes in the discussion of the proposed tax regulation that owning stock is part of insurers’ business.