Transfer Pricing may not have been a specific focus of the 700+ page Inflation Reduction Act. However, global tax strategies can be impacted by the new 15% alternative minimum tax (AMT). This AMT targets large companies to ensure these highly profitable enterprises pay their fair share of tax.
A large corporation’s tax liability would be the greater of 15 percent of financial statement book income, after adjustments, or the company’s regular tax liability.
Why Impose a 15% Minimum Tax Rate?
Although the US federal corporate tax rate is 21%, many companies do not pay the full rate due to tax incentives, credits, or global tax minimization structures, for example. This alternative minimum tax system is designed to ensure highly profitable companies will pay at least a 15 percent rate on global book income.
What Does the Alternative Minimum Tax Rate / Book Minimum Tax Mean for Large Companies?
The 15% minimum tax rate may complicate tax planning strategies both on the US and global basis. Multinational companies may benefit from revisiting their transfer pricing policies in light of considering the minimum 15% rate, the GILTI tax, and similar global efforts to impose minimum taxes on companies with cross-border operations.
How Are Transfer Pricing Strategies Affected
Since intercompany pricing affects a multinational’s global effective tax rate, transfer pricing strategies in place now, may not be tax efficient.
Questions about the 15% alternative minimum tax and/or Transfer Pricing? We can help. If you own or operate a multinational company, allow KBKG’s experts to assist with establishing, documenting, and defending transfer pricing practices for the IRS and international tax authorities. Contact us today.
About the Author
Alex Martin – Principal
Alex Martin is the Principal and Transfer Pricing Practice leader at KBKG, operating from Michigan. He has 25 years of full-time transfer pricing experience working in Washington, D.C.; Melbourne, Australia; and Detroit, Michigan over the course of his career. KBKG was named one of the world’s leading transfer pricing consultancies by the International Tax Review for 2021-2022. » Full Bio