EU Corporate Minimum Tax

The European Union (EU) reached an agreement (December 12) to impose a 15% minimum tax on large corporations (more than €750 million in income).

This action follows an action by the United States in August 2022, with the enactment of a similar 15% minimum tax on corporations contained within the Inflation Reduction Act.

The tax will have to be adopted by EU member countries within individual tax law by the end of 2023.

(posted: 12-16-22)

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Inflation Reduction Act Corporate Tax Changes

The Inflation Reduction Act (August 2022) includes two significant tax changes on corporations, the first major tax legislation since the Trump Administration’s Tax Cut and Jobs Act of 2017.

The two provisions, which start after 2022:

• A 15% alternative minimum tax (AMT) on the income (i.e., “adjusted financial statement income”) of certain corporations. Affected corporations are generally those with income exceeding $1 billion for three consecutive years. The Congressional Joint Committee on Taxation estimated that upwards of 150 companies could be affected by this new minimum tax, though this estimate was made prior to last minute negotiations that exempted some types of companies. The Congressional Research Service said in August that this could mean that about 30% of Fortune 500 companies could be subject to this new minimum tax, which suggests that favorable tax rules gave these companies the ability to pay below a 15% rate. The Center for American Progress provided a list (April 2022) of 19 Fortune 100 companies that in 2021 paid taxes below 15%, or actually paid no Federal corporate taxes.

• An excise tax on stock “repurchases” by certain corporations. The excise tax is 1% of the “aggregate fair market value” of the repurchased stock less the value of new stock issued by that corporation. The tax affects almost all corporation types; it excludes S corporations, real estate investment trusts and regulated investment companies. The scope of repurchases covers not only traditional stock redemptions or buybacks, but also any transaction Treasury determines is “economically similar” to a corporate stock redemption such as cash consideration in certain traditional taxable stock acquisitions or taxable merger transactions to the extent funded by the target company.

(updated: 9-21-22)

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