The New Corporate AMT: Impact on International Operations

By: Adam S. Halpern , William R. Skinner


On August 16, President Biden signed into law the Inflation Reduction Act of 2022, P.L. 117-169 (IRA). The law addresses a range of issues, from climate change to energy security to prescription drug prices for seniors. It provides $80 billion of additional funding for the IRS over the next 10 years, with most of the money slated for enforcement.

Aside from energy-related credits and other provisions, there are only a handful of tax provisions in the law. This article focuses on the interaction of the main tax provision, the new corporate AMT, with U.S. and global international tax rules.

A word of warning: Our comments are based entirely on the statutory text of the IRA. There are no committee reports or other official government explanations of the AMT; at least none that we could find as of the time of this writing. Additionally, the statute in several places provides specific authority to Treasury to write regulations. As was the case with numerous TCJA provisions, regulations could take a different course from the plain statutory text.

The AMT is a 15% minimum tax on “adjusted financial statement income” (AFSI) of an “applicable corporation.” An applicable corporation means, generally, a corporation whose average annual AFSI exceeds $1 billion for any three-tax-year period ending before the current tax year and after December 31, 2021. AFSI means the net income or loss set forth on the taxpayer’s applicable financial statement (AFS), with various statutory adjustments.

Treatment of CFCs under the AMT

In general, under § 56A(c)(2), AFSI includes only the income of members of the U.S. consolidated group. Income of non-consolidated entities is only taken into account to the extent of dividends paid to a group member.

Special rules are provided for CFCs, however. Subpart F and GILTI inclusions are not taken into account in determining AFSI. Neither are dividends and other distributions from CFCs. Instead, under § 56A(c)(3), a U.S. shareholder adjusts its financial statement net income or loss by its pro rata share of its CFCs’ income and expense items, adjusted under rules similar to those that apply in determining AFSI. If the aggregate adjustment for all CFCs would be negative, the negative adjustment is not made to reduce AFSI: It carries forward and becomes part of the CFC adjustment for the following year. (In contrast, losses of disregarded entities owned by the U.S. group are taken into account, as discussed below.)

So, in addition to computing a pro rata share of each CFC’s Subpart F income, tested income or tested loss, QBAI, tested interest expense, and tested interest income, U.S. shareholders will now also compute a pro rata share of each CFC’s financial statement income and expense items. What will they think of next? One can only imagine the delightful new schedules on the 2023 edition of Form 5471.

How does a multinational company decide which income and expense items on its AFS properly belong to its CFCs? Under the plain terms of § 56A(c)(3), these are the income and expense items set forth on the applicable financial statement of the CFC. As explained below, the regulations under Section 451(b) provide guidance that govern the allocation of items of AFSI to a CFC.

Section 56A(b) defines AFS by reference to § 451(b)(3), and the § 451(b) regulations allocate AFSI to a subsidiary included in the parent’s consolidated AFS. First, under Treas. Reg. § 1.451-3(h)(1), if a CFC's financial results are reported on a consolidated AFS, the CFC’s AFS is the consolidated AFS. A different rule applies if the CFC’s financial results are also reported on a separate AFS that is of equal or higher priority, but under § 451(b)(3), GAAP financials reported to the SEC on Form 10‑K are the highest priority AFS. Thus, a CFC’s AFS should generally be the U.S. parent’s AFS.

Second, under Treas. Reg. § 1.451-3(h)(3), if the parent’s AFS does not separately list a CFC’s income and expense items, the CFC’s portion of AFS revenue is based on the CFC’s separate company financials that were used to create the consolidated AFS. The CFC’s portion of AFS revenue specifically includes amounts subsequently eliminated in the consolidated AFS. The
§ 451(b) regulations do not address expenses (because § 451(b) is about the timing of income), but the same rules ought to apply on the expense side.

Foreign Tax Expense and the Corporate AMT Foreign Tax Credit

Section 56A(c)(5) provides that foreign income tax expense recorded on the AFS is disregarded in determining AFSI (as is federal income tax expense). Thus, the foreign component (as well as the federal component) of the provision for income taxes must be added back to financial statement net income. Treasury can provide an exception if the taxpayer elects to deduct, rather than credit, foreign income taxes. The proper treatment of current and deferred taxes is also left to regulations.

The new “corporate AMT foreign tax credit” (CAMTFTC) is set forth in § 59(l). It’s quite different from the old AMT FTC, which was essentially a parallel system to the regular foreign tax credit. The CAMTFTC consists of two components: one for foreign income taxes paid or accrued by a U.S. corporation, and one for foreign income taxes paid or accrued by a CFC. The credit is the sum of these two components.

The U.S. corporation component is simply the amount of foreign income, war profits and excess profits taxes (within the meaning of § 901) taken into account on the applicable corporation’s AFS and paid or accrued by the corporation for federal income tax purposes. The CFC component is similar, but it is subject to a quasi-§ 904 limitation. It is the lesser of (i) the amount of foreign income, war profits and excess profits taxes (within the meaning of § 901) taken into account on the AFS of each CFC and paid or accrued by the CFC for federal income tax purposes, or (ii) 15% of the CFC AFSI adjustment under § 56A(c)(3), discussed above. If the CFC component is limited by the 15% quasi-§ 904 limitation, the excess CFC taxes carry over for up to five years.

The CFC component of the CAMTFTC is roughly comparable to the regular tax GILTI basket FTC under § 960(d), at least where the U.S. group has sufficient GILTI basket FTCs. The blended foreign tax rate has to be slightly higher to achieve a full credit offset of U.S. tax liability: 15% as compared with 13.125% under GILTI. On the other hand, there is no requirement to allocate expenses. Thus, interest and R&D deductions of the U.S. consolidated group that are not reflected on the CFC’s AFS don’t affect CFC net income or the quasi-§ 904 limitation.

On the other hand, for U.S. groups with significant low-taxed GILTI relative to U.S. income, the AMT might operate like a simple tax increase: The rate will now be 15% instead of 10.5%. A similar problem could arise for U.S. groups with substantial FDII relative to non-FDII U.S. income. These tax increases will likely be exacerbated by the “book” aspect of the AFSI calculation, particularly for companies with substantial “old and cold” NOLs and/or stock-based compensation deductions. The tax won’t hit all large U.S. companies equally.

By defining the taxes eligible for credit as foreign “income, war profits and excess profits taxes (within the meaning of § 901),” the CAMTFTC allows some foreign taxes as credits that would be denied under the regular tax. For example, foreign income taxes that are “not taken into account” as credits under the regular tax by reason of § 901(m) are nonetheless “income, war profits and excess profits taxes,” and thus are allowed under the CAMTFTC. This outcome is appropriate: The increased amortization benefit of a stepped-up basis from a foreign acquisition—where a § 338 election is made, for example—will generally not be reflected in AFSI. Similarly, the § 960(d) haircut for foreign taxes on GILTI determines the amount of a CFC’s taxes that are deemed paid by the U.S. parent, but does not change the treatment of those taxes as foreign income taxes of the CFC. Thus, the full amount of these taxes ought to enter into the computation of the CAMTFTC.

Foreign-Parented Groups

In the case of a foreign-parented group, the definition of an “applicable corporation” is adjusted under § 59(k)(2). An applicable corporation is always a domestic corporation. But if the applicable corporation is a U.S. subsidiary in a foreign-parented group, the $1 billion AFSI threshold applies to the combined net income of all members of the group, without the CFC adjustment and certain other adjustments. In addition, the U.S. applicable corporation must have $100 million of AFSI, measured in the usual way but without the § 56A(d) financial statement NOL adjustment. If a foreign corporation in a foreign-parented group is engaged in a U.S. trade or business, the U.S. trade or business is treated as a U.S. subsidiary in applying these tests.

Where a foreign parent owns more than one U.S. consolidated group, the U.S. groups are combined in applying the $100 million AFSI threshold: Even after the Thune amendment, § 59(k)(1)(D) still provides that for purposes of determining whether a corporation is an applicable corporation, AFSI is calculated on a combined basis for persons treated as a single employer under § 52(a) or (b). This rule includes parent-subsidiary controlled groups, under
§ 1563, through one or more chains of corporations with more than 50% ownership at each link in the chain.

Section 56A(c)(4) provides that in the case of a foreign corporation, the principles of § 882 apply in determining AFSI of the foreign corporation. This adjustment limits the amount of the foreign corporation’s AFSI that is included in the AMT tax base to items that would constitute effectively connected income (ECI) for regular tax purposes.

Treatment of Disregarded Entities

Under § 56A(c)(6), the net income or loss of foreign disregarded entities owned by U.S. consolidated group members will be included in consolidated group net income. Thus, unlike CFCs, there is a complete inclusion of disregarded entities’ income or loss in the parent’s AFSI. For example, checking the box on a loss-making first-tier CFC could be helpful in mitigating the AMT, just as it could be helpful for regular tax purposes.

The Proliferation of Minimum Taxes

The new AMT now marks the third set of U.S. tax rules designed to cause U.S. multinational companies to “pay their fair share.” U.S. companies may be subject to the corporate AMT, GILTI and BEAT. At the same time, in the European Union and elsewhere outside of the United States, Pillar 2 may be enacted to adopt yet another minimum tax. Based on the current Pillar 2 guidance, it seems likely that none of the three U.S. minimum taxes will be deemed compliant with Pillar 2. This leaves U.S. companies subject to a patchwork quilt of minimum taxes (in addition to the regular corporate tax).

Some of the salient comparison points between these four minimum taxes are summarized in the following table:

Corporate AMT

Pillar 2



Threshold for Application

$1 billion of average AFSI for three years

750M Euro of annual income

$500M average revenue for three years, plus 3% base erosion percentage


Tax Rate

15% of AFSI

15% of AFSI, but per country

10%/12.5% of modified taxable income



Yes, blended

Per country application to determine if “top-up tax” is warranted


Yes, blended

Use of NOLs

Available for post-2019 AFS NOLs only

Available under complex deferred tax asset accounting rules

Available, but NOLs may create BEAT liability, depending on the facts

Foreign NOLs disallowed; tested losses only

U.S. NOLs eliminate the § 250 deduction

The AMT applies after GILTI imposes a minimum tax on offshore income of 10.5%, with a Foreign Tax Credit described above. For companies with a low rate of foreign tax on GILTI, the AMT may apply and claw back some of the benefits of the § 250 deduction. For a company with a high rate of foreign tax on GILTI, the AMT is unlikely to apply to collect residual U.S. tax on GILTI, given that the AMT’s quasi-§ 904 limitation is more lenient than § 904(a) of the Code.

The IRA provides some coordination between BEAT and the AMT. Under
§ 55(a)(2), any taxes imposed under BEAT are creditable against the AMT. However, AMT is creditable against regular tax liability, whereas BEAT is not. A taxpayer subject to both regimes, therefore, may have an incentive to minimize the amount of BEAT, even at the cost of paying AMT.

By enacting the AMT, Congress has enacted a minimum tax of 15% based on the parent’s AFSI. However, like GILTI, the AMT might not satisfy the country-by-country requirement envisaged by Pillar 2. The AMT allows cross-crediting of foreign taxes paid to different jurisdictions. If Pillar 2 were adopted in its current form, a U.S.-based multinational company could be subject to both Pillar 2 and AMT (in addition to BEAT and GILTI).

Assuming this outcome applies, questions would arise in the coordination of the AMT with Pillar 2. For example, Pillar 2 allows the parent company to “push down” taxes imposed under a CFC Tax Regime to a local country to determine its tax rate (see Article 4.3 of the OECD Model Commentary on Pillar 2 2022). Would such a CFC push down be available for taxes imposed under the AMT? Although the AMT is not specifically an anti-deferral regime, it would seem to meet the definition of a “CFC Tax Regime” for this purpose (see Article 10.1, defining a CFC Tax Regime as a set of rules under which a shareholder … “is subject to current taxation on its share of part or all of the income earned by the CFC, irrespective of whether that income is distributed currently. …”).

One notable difference between the AMT and Pillar 2 is in the treatment of deferred tax assets and liabilities. Pillar 2 permits a relevant entity to take into account a deferred tax asset, such as an NOL, in determining its tax rate as a fraction of AFSI in a particular jurisdiction. The AMT, as noted above, provides only a limited adjustment for Financial Statement NOL Carryovers. It is possible, therefore, for a company that escapes incurring any minimum taxes under
Pillar 2 to nonetheless run afoul of the new AMT. Could timing differences between the AMT and Pillar 2 even push companies into Pillar 2, when minimum tax credits reduce U.S. tax in a subsequent year?


Rather than celebrating the imposition of yet another parallel tax regime on U.S.‑based multinationals, Congress should consider ways of simplifying the taxation of American companies. It is inefficient and anti-competitive for U.S.-based companies to have to comply with the current multiplicity of minimum taxes, each one complex and each one different from the others, while their foreign competitors do not.