Can or CAMT: CFC Dividends Under AFSI

December was a busy month for the IRS. They released proposed regulations related to the interplay of GloBE, FTCs, and DCL rules on December 11 and issued Notice 2024-10 on December 15. Notice 2024-10 provides interim guidance regarding distributions from a CFC to a U.S. person or another CFC as it relates to the calculation of adjusted financial statement income (AFSI) for purposes of the corporate alternative minimum tax (CAMT) calculation. This guidance, and potentially future proposed regulations, is intended to prevent the double counting of a CFC’s income and dividend(s) while determining AFSI.

CAMT was introduced with the Inflation Reduction Act on August 16, 2022. While it’s not a widely discussed section of the legislation, it is one tax professionals and multinational enterprises have been closely following. Starting in 2023, large corporations (defined as entities with revenues of $1 billion or more) are subject to a minimum tax of 15% based on their AFSI for years beginning after December 31, 2022. AFSI is, as its name implies, the U.S. consolidated group’s book income, with certain modifications, based on the generally accepted accounting principles used to report such financials.

One of the adjustments made to get to AFSI, Section 56A(c)(2)(C), determines the treatment of subsidiary income as included or excluded depending on whether the subsidiary is in a consolidated return. It specifically excludes income included through Sections 951 and 951A. The guidance defines that a U.S. shareholder should disregard CFC Dividends from AFSI and include its proportionate share of the CFC income and deductions. The regulations for a CFC receiving dividends from another CFC are similar, with some exclusions to what items of income and deductions can be included.

Tax practitioners should expect further changes to U.S. tax law as the U.S. tax system continues to align with the OECD’s Pillar Two tax model. Generally, this will increase the complexity of compliance and necessitate additional guidance. Contact our Global Business Services team for any questions related to international tax.