Sec. 105. Restrictions on deduction for interest expense of members of financial reporting groups with excess domestic indebtedness
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Section 163 is amended by redesignating subsection
(n)as subsection
(o)and by inserting after subsection
(m)the following new subsection: In the case of any corporation which is a member of an applicable financial reporting group the common parent of which is a foreign corporation, the deduction allowed under this chapter for interest paid or accrued by the corporation during the taxable year shall not exceed the applicable limitation for the taxable year. Any amount disallowed under paragraph
(1)for any taxable year shall be treated as interest paid or accrued in the succeeding taxable year. For purposes of this subsection— The applicable limitation with respect to a taxpayer for any taxable year is the sum of— the greater of— the taxpayer’s allocable share of the applicable financial reporting group’s net interest expense for the taxable year, or 10 percent of the taxpayer’s adjusted taxable income for the taxable year, plus the excess limitation carryforwards to the taxable year from any preceding taxable year. The applicable limitation under subparagraph
(A)for any taxable year shall not be less than the amount of interest includible in the gross income of the taxpayer for the taxable year. If the applicable limitation of a taxpayer for any taxable year (determined without regard to carryforwards under subparagraph (A)(ii)) exceeds the interest paid or accrued by the taxpayer during the taxable year, such excess shall be an excess limitation carryforward to the 1st succeeding taxable year and the 2nd and 3rd succeeding taxable years to the extent not previously taken into account under this paragraph. For purposes of this subsection— A taxpayer’s allocable share of an applicable financial reporting group’s net interest expense for any taxable year shall be the amount (not less than zero) which bears the same ratio to such net interest expense as— the net earnings of the taxpayer, bears to the aggregate net earnings of all members of the applicable financial reporting group. The term net earnings means, with respect to any taxpayer, the earnings of the taxpayer— computed without regard to any reduction allowable for— net interest expense, taxes, or depreciation, amortization, or depletion, and computed with such other adjustments as the Secretary may by regulations prescribe. If a taxpayer elects not to compute its allocable share, or fails to establish to the satisfaction of the Secretary the amount of its allocable share, for any taxable year, the allocable share shall be zero. For purposes of this subsection— Any determination of net interest expense for any taxable year shall be made— on the basis of the applicable financial statement of the applicable financial reporting group for the last financial reporting year ending with or within the taxable year, and under United States tax principles. Any determination of net earnings for any taxable year shall be made on the basis of the applicable financial statement of the applicable financial reporting group for the last financial reporting year ending with or within the taxable year. The term applicable financial statement means a statement for financial reporting purposes which is made on the basis of— generally accepted accounting principles, international financial reporting standards, or any other method specified by the Secretary in regulations. A statement under clause
(ii)or
(iii)may be used as an applicable financial statement by a group only if there is no statement of the group under any preceding clause. For purposes of this subsection— The term applicable financial reporting group means, with respect to any corporation, a group of which such corporation is a member and which files an applicable financial statement. Such term shall not include a group if the aggregate net interest expense for which a deduction is allowable to all members of the group under this chapter (determined without regard to this subsection or any other limitation on deductibility of interest under this chapter) is less than $5,000,000. A corporation which is described in section 864(f)(4)(B), or is treated as described in section 864(f)(4)(B) by reason of paragraph (4)(C) or (5)(A) of section 864(f) (without regard to whether an election is made under such paragraph (5)(A)), shall not be treated as a member of an applicable financial reporting group of which it is otherwise a member and this subsection shall not apply to such corporation. For purposes of this subsection— The term adjusted taxable income has the meaning given such term by subsection (j)(6)(A). The term net interest expense has the meaning given such term by subsection (j)(6)(B). All members of the same affiliated group (within the meaning of section 1504(a)) shall be treated as 1 taxpayer. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations providing— for the coordination of the application of this subsection and other provisions of this chapter relating to the deductibility of interest, for the waiver of certain adjustments required under United States tax principles in appropriate cases for purposes of applying this subsection, for the determination of which financial institutions are eligible for the exception from membership in an applicable financial reporting group under paragraph (6)(C) and the application of this subsection to the other members of the group which are not so excepted, and for the application of this subsection in the case of pass thru entities and for the treatment of pass thru entities as corporations in cases where necessary to prevent the avoidance of the purposes of this subsection. . Paragraph
(2)of section 163(j) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: This subsection shall not apply to any corporation for any taxable year to which subsection
(n)applies to such corporation. . The amendments made by this section shall apply to taxable years beginning after December 31, 2016.