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November 2, 2021

US: Latest Build Back Better proposal includes 15% corporate minimum tax on book income

As part of the budget reconciliation negotiations, United States (US) Senate Finance Committee Chairman Ron Wyden and Senators Elizabeth Warren and Angus King proposed a 15% corporate alternative minimum tax (CAMT) based on book income for companies that report over US$1 billion1 in profits to shareholders. The CAMT is included as a primary revenue raiser in the latest version of the Build Back Better proposal, which was released 28 October 2021. The proposal would apply to tax years beginning after 31 December 2022.

15% minimum tax and Applicable Corporations

The proposal would amend Internal Revenue Code2 Section 55(b) to establish a 15% minimum tax on a corporation's adjusted financial statement income to the extent it exceeds the corporate AMT foreign tax credit for the tax year (corporate AMT foreign tax credit discussed more later).

The 15% minimum tax would apply to any corporation (other than an S corporation, regulated investment company, or real estate investment trust) whose average annual adjusted financial statement income exceeds $1 billion over any consecutive three-tax-year period preceding the tax year. For purposes of determining the average annual adjusted financial statement income, the proposal would require all persons treated as a single employer to be treated as one person (with certain exceptions in applying Section 1563 that would include, for example, taking certain foreign corporations into account). For a corporation that is a member of an international financial reporting group with a foreign parent, two thresholds must be met: (i) average annual adjusted financial statement income must be greater than the $1 billion threshold (for this purpose, it appears that it is intended that all income of all foreign members of the financial reporting group is included); and (ii) average annual adjusted financial statement income (including only income of the US corporation(s), income of controlled foreign corporations under Section 56A(c)(3) and effectively connected US income) is $100 million or more.

For applicable corporations, Section 55(a)(2) would be amended to include the tax imposed by Section 59A (base erosion anti-abuse tax), thus reducing the tax imposed under Section 55 to the extent of any tax imposed under Section 59A.

Three-tax-year period

The three-tax-year period would mean any three consecutive tax years preceding the tax year in which the tax would apply. Several enumerated special rules apply for purposes of determining the three-tax-year period. For example, the proposal would consider only tax years beginning after 31 December 2019. If a corporation has existed for less than three tax years, the proposal would substitute the numbers of years the corporation has existed for three. Additionally, any tax year less than 12 month would be required to be annualized and references to any corporation would include any predecessor of that corporation.


The minimum tax would not apply to corporations that have a change in ownership or have a consistent decrease in adjusted financial statement income that falls below the thresholds, conditioned upon Treasury also determining that it would be inappropriate to continue to subject the corporation to the tax. The corporation would then begin a new testing period beginning with the three tax years after the first tax year for which the determination applies.

Adjusted financial statement income

The proposal adds new Section 56A to define and determine the "adjusted financial statement income" of a corporation (taxpayer). Under Section 56A, a taxpayer's adjusted financial statement income would be the taxpayer's net income or loss reported in the taxpayer's applicable financial statement — as defined in Section 451(b)(3) — with adjustments for certain items. If a taxpayer's financial results were reported on the applicable financial statement for a group of entities, that financial statement would be treated as the taxpayer's applicable financial statement. Special rules would apply for cooperatives, Alaska native corporations, and mortgage servicing companies.

Although the proposal would require Treasury to issue regulations and other guidance on adjustments to adjusted financial statement income that the Treasury determines necessary to carry out the purposes of Section 56A, the proposal provides several specific adjustments:

  • The proposal would require adjustments if an applicable financial statement covers a period other than the tax year.

  • Taxpayers that file a consolidated tax return would only take into account items from the applicable financial statement that are properly allocated to members of the group included on the tax return.

  • For a corporation not included on a consolidated return with the taxpayer, the taxpayer would only take into account the earnings of that corporation to the extent of dividends received from the corporation and other amounts required to be included in gross income (other than amounts included under Sections 951 and 951A).

  • Adjustments would be required to include the financial statement income of a disregarded entity that is owned by the taxpayer and not otherwise included on the applicable financial statement.

  • Taxpayers electing to claim foreign tax credits under Section 901 would have to make adjustments to remove any federal income taxes and income, war profits or excess profits taxes imposed by any foreign country or possession of the United States.

  • A taxpayer that is a US shareholder of a controlled foreign corporation (CFC) would be required to adjust its financial statement income to take into account its pro rata share of items taken into account in computing the taxpayer's pro rata share of net income or loss on the CFC's applicable financial statement. To the extent the adjustment from a CFC were negative in a specific tax year (or, in the case of multiple CFC interests, the aggregate adjustment were negative in the tax year), no adjustment would be permitted in the specific tax year and the negative adjustment would be carried forward to the succeeding tax year.

  • Adjustments would be required to disregard any amounts received as a tax refund that is attributable to an election under Section 6417.

Deduction for financial statement net operating loss

The proposal would allow taxpayers to deduct financial statement net operating losses (NOLs) from adjusted financial statement income. The deduction would be the lesser of:

  • The aggregate amount of financial statement NOL carryovers to the tax year
  • 80% of "adjusted financial statement income computed without regard to the deduction allowable under" Section 56A(d)

"Financial statement net operating loss" would mean the amount of the net loss on the corporation's applicable financial statement for tax years ending after 31 December 2019. The proposal contemplates a taxpayer may carry forward a financial statement NOL indefinitely.

Corporate AMT foreign tax credit

The minimum tax could be reduced by the AMT foreign tax credit (if the taxpayer chose that benefit). The AMT foreign tax credit would be the sum of: (i) the taxpayer's pro-rata share of applicable foreign taxes that are paid or accrued by each CFC for which the taxpayer is a US Shareholder and included in the applicable financial statement (or the amount provided in Section 56A(c)(3) multiplied by 15%, if that product were less than the taxpayer's aforementioned pro-rata share of foreign taxes); and (ii) the applicable foreign taxes that are paid or accrued by the taxpayer and taken into account in the applicable financial statement. Generally, this means that foreign income taxes paid by CFCs would be subject to a single 15% limitation and foreign income taxes paid by domestic corporations would not subject to limitation.

To the extent a taxpayer's pro-rata share of foreign taxes paid or accrued by applicable CFCs exceeds 15% of the income described in Section 56A(c)(3), such excess could be carried forward for five years.

General business credits

Under the proposal, a taxpayer's general business credit would be limited to 75% of taxpayer's net income tax that exceeds $25,000 (with no limit against the first $25,000 of taxpayer's net income tax).

For this purpose, net income tax is defined as the sum of taxpayer's regular tax liability and the tax imposed by Section 55 (including the minimum tax discuss herein).

Credit for prior-year minimum tax liability

The proposal would adjust the rules in Section 53 to provide a minimum tax credit for applicable corporations. Such credit would equal the net minimum tax (i.e., the tax imposed by Section 55) for all prior tax years beginning after 2022 over amounts allowable as a credit for such years. The proposal would also clarify that, when computing the credit limitation, the regular tax liability referenced in Section 53(c)(1) would increase by the tax imposed by Section 59A (i.e., the base erosion anti-abuse tax (BEAT)).

Treasury to issue regulations

The proposal directs Treasury to issue regulations and other guidance for the purpose of carrying out various provisions. Examples of such provisions are as follows:

  • Section 59(k) (defining applicable corporation), including guidance on a simplified method for determining whether a corporation is an applicable corporation and guidance clarifying the rules for a corporation that experiences a change in ownership

  • Section 56A(c) (determining adjusted financial statement income) to provide additional required adjustments when determining adjusted financial statement income

  • Section 56A(d) (regarding determining and otherwise treating financial statement NOLs)

  • Section 59(l) (regarding the CAMT foreign tax credit)


The CAMT a newly proposed tax that would affect taxpayers differently, depending on their financial income. This proposed CAMT would require taxpayers to perform two separate calculations for federal income tax purposes and pay the greater of the alternative minimum tax or their regular tax liability plus any BEAT liability imposed by Section 59A. Accordingly, taxpayers may wish to quantify and compare the proposed CAMT to their current tax liabilities.

As an added complexity, Treasury is instructed to issue guidance to deal with numerous issues that the proposal has yet to resolve. For example, there are some questions on application of the gating thresholds. These issues should be addressed before enactment so taxpayers may determine whether they are subject to the proposal.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), National Tax – Accounting Periods, Methods, and Credits

Ernst & Young LLP (United States), International Tax and Transaction Services



  1. Currency references in this Alert are to the US$.

  2. All “Section” references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.


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