Page:United States Statutes at Large Volume 102 Part 4.djvu/524

 102 STAT. 3494

PUBLIC LAW 100-647—NOV. 10, 1988 "(II) passive income (determined without regard to subclause (I) of subparagraph (A)(iii)), or "(III) export financing interest which (but for subparagraph (B)(ii)) would be high withholding tax interest. "(ii) GENERAL DESCRIPTION OF FINANCIAL SERVICES

INCOME.—Income is described in this clause if such income is— "(I) derived in the active conduct of a banking, financing, or similar business, "(II) derived from the investment by an insurance company of its unearned premiums or reserves ordinary and necessary for the proper conduct of its insurance business, or "(III) of a kind which would be insurance income as defined in section 953(a) determined without regard to those provisions of paragraph (I)(A) of such section which limit insurance income to income from countries other than the country in which the corporation was created or organized, "(iii) EXCEPTIONS.—The term 'financial services income' does not include— "(I) any high withholding tax interest, "(II) any dividend from a noncontrolled section 902 corporation, and "(III) any export financing interest not described in clause (i)(III)." (B) Clause (i) of section 864(d)(5)(A) of the 1986 Code is amended by striking out "(C)(iii)" and inserting in lieu thereof "(C)(iiiXIII)*^. (2) Subparagraph (D) of section 904(d)(2) of the 1986 Code is amended by adding at the end thereof the following new sentence: "Such term does not include any dividend from a noncontrolled section 902 corporation and does not include any financial services income." (3) Paragraph (3) of section 904(d) of the 1986 Code is amended by adding at the end thereof the following new subparagraph: "(H) EXCEPTION FOR CERTAIN HIGH WITHHOLDING TAX IN-

TEREST.—This paragraph shall not apply to any amount which— "(i) without regard to this paragraph, is high withholding tax interest (including any amount treated as high withholding tax interest under paragraph (2)(B)(iii)), and "(ii) would (but for this subparagraph) be treated as financial services income under this paragraph. The amount to which this paragraph does not apply by reason of the preceding sentence shall not exceed the interest or equivalent income of the controlled foreign corporation taken into account in determining financial services income without regard to this subparagraph." (4) Subparagraph (E) of section 904(d)(3) of the 1986 Code is amended— (A) by striking out the first sentence and inserting in lieu thereof the following: "If a controlled foreign corporation meets the requirements of section 954(b)(3)(A) (relating to de minimis rule) for any taxable year, for purposes of this

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