On October 26, 2021, Senators Elizabeth Warren (D-MA), Angus King (I-ME) and Ron Wyden (D-OR), along with other Senators as co-sponsors, * published a proposal to Minimum Corporate Income Tax (the CPM Tax Proposal) as part of the Build Back Better Act reconciliation bill. The CPM’s tax proposal aims to ensure that companies that report more than $ 1 billion in profits to shareholders will pay a minimum tax of 15% on those profits.
In a press release accompanying the language of the proposal, senators estimate the tax would apply to about 200 businesses and bring in hundreds of billions in revenue over 10 years.
The proposal appears to satisfy Senators Kirsten Sinema (D-AZ) and Joe Manchin (D-WV) and is therefore likely to form part of the final reconciliation measure.
The most notable tax elements of CPM’s tax proposal are discussed below.
Alternative minimum corporate tax
Effective for tax years beginning after 2022, the proposed Alternative Minimum Corporate Tax (AMT on Corporations) would apply to corporate taxpayers (other than S corporations, RICs or REITS) that meet certain thresholds. average income over a three-year period. The net income threshold would be an annual average of $ 1 billion determined on the basis of the financial statements with certain adjustments (“adjusted earnings from financial statements”).
The taxpayer’s tax liability for a year would correspond to the excess of the company’s proposed AMT liability by the taxpayer over its ordinary tax liability for the year, plus the tax liability for the year. BEAT of the taxpayer for the year, if applicable.
Rules for determining Adjusted Financial Income
A taxpayer’s adjusted net financial income threshold is determined by taking into account the income of controlled foreign companies and unconsolidated entities (for tax purposes). It is also increased to remove any US or foreign income tax deduction.
For multinational groups of foreign origin, the threshold of $ 1 billion is determined by including all income from the group’s financial statements. In addition, the corporate AMT would only apply to multinational groups with a foreign parent company if the adjusted average financial income of US entities within the group (and foreign entities with ECI) is equal to or greater than 100 millions of dollars.
Adjustments for temporary differences
The provision would provide for an adjustment for temporary differences, including the carry-forward of net losses in their adjusted financial income, FTCs and any corporate AMTs paid in a previous year.
Notably, US taxpayers would not be allowed to carry forward net losses that arose in years beginning before December 31, 2022, which will penalize taxpayers with existing NOL carryovers.
In the case of the SEC’s net financial losses, these losses would not reduce the net income of the US taxpayer, but rather reduce the future adjusted financial income of that SEC in future years for the purposes of the corporate AMT.
Taxpayers are allowed to offset the amount of the corporation’s AMT with the foreign taxes that are included in the applicable financial statements (FTC AMT). Carry forward of excess FTC AMTs is generally permitted for five years with certain limitations.
In the case of corporate AMT paid in a prior year, the provision would allow for an indefinite carry forward.
The proposal gives the Treasury and the IRS regulatory authority to enforce these provisions, including regulations providing a simplified method for determining whether a company meets income thresholds and changes ownership.