with respect to such activity shall be equal to such applicable percentage. (C) Specified service activity The term specified service activity means any activity involving the performance of services described in section 1202(e)(3)(A), including investing, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). (4) Reduction in capital percentage in certain cases The capital percentage (determined after the application of paragraphs (2) and (3)) with respect to any active business activity shall not exceed 1 minus the quotient (not greater than 1) of— (A) any amounts described in subsection (c)(2) which are taken into account in determining the net business income derived from such activity, divided by (B) such net business income. (f) Applicable percentage For purposes of this section— (1) In general The term applicable percentage means, with respect to any active business activity for any taxable year, the quotient (not greater than 1) of— (A) the specified return on capital with respect to such activity for such taxable year, divided by (B) the taxpayer’s net business income derived from such activity for such taxable year. (2) Specified return on capital The term specified return on capital means, with respect to any active business activity referred to in paragraph (1), the excess of— (A) the product of— (i) the deemed rate of return for the taxable year, multiplied by (ii) the asset balance with respect to such activity for such taxable year, over (B) an amount equal to the interest which is paid or accrued, and for which a deduction is allowed under this chapter, with respect to such activity for such taxable year. (3) Deemed rate of return The term deemed rate of return means, with respect to any taxable year, the Federal short-term rate (determined under section 1274(d) for the month in which or with which such taxable year ends) plus 7 percentage points. (4) Asset balance (A) In general The asset balance with respect