Sec. 138111. Limitations on deduction for interest expense
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Section 163 is amended by redesignating subsection
(n)as subsection
(p)and by inserting after subsection
(m)the following new subsection: In the case of any specified domestic corporation which is a member of any international financial reporting group, the deduction under this chapter for interest paid or accrued during the taxable year in excess of the amount of interest includible in the gross income of such corporation shall not exceed the allowable percentage of 110 percent of such excess. For purposes of this subsection— The term specified domestic corporation means any domestic corporation other than— any corporation if the excess of— the average amount of interest paid or accrued by such corporation during the 3-taxable-year period ending with the taxable year to which paragraph
(1)applies, over the average amount of interest includible in the gross income of such corporation for such 3-taxable-year period, does not exceed $12,000,000, any corporation to which paragraph
(1)of section 163(j) does not apply by reason of paragraph
(3)of such section (determined without regard to paragraph (4)(B) of such section), and any S corporation, real estate investment trust, or regulated investment company. For purposes of clauses
(i)and
(ii)of subparagraph (A), all domestic corporations which are members of the same international financial reporting group shall be treated as a single corporation. If a foreign corporation is engaged in a trade or business within the United States, such foreign corporation shall be treated as a domestic corporation with respect to the items that are effectively connected with such trade or business. For purposes of this subsection— The term international financial reporting group means, with respect to any reporting year, two or more entities if— either— at least one entity is a foreign corporation engaged in a trade or business within the United States, or at least one entity is a domestic corporation and another entity is a foreign corporation, and such entities are included in the same applicable financial statement with respect to such year. To the extent provided by the Secretary in regulations or other guidance, an international financial reporting group may elect (at such time and in such manner as the Secretary may provide) to treat all eligible corporations with respect to such group as members of such group for purposes of this subsection. As a condition of such election, all such eligible corporations must maintain (and provide access to) such books and records as the Secretary determines are satisfactory to allow for the application of this subsection with respect to such eligible corporations. Such election may be revoked only with the consent of the Secretary. The term eligible corporation means, with respect to any international financial reporting group, any corporation if at least 20 percent of the stock of such corporation (determined by vote and value) is held (directly or indirectly) by members of such international financial reporting group (determined without regard to this subparagraph). For purposes of this subsection— The term allowable percentage means, with respect to any specified domestic corporation for any taxable year, the ratio (expressed as a percentage and not greater than 100 percent) of— such corporation’s allocable share of the international financial reporting group’s reported net interest expense for the reporting year of such group which ends in or with such taxable year of such corporation, over such corporation’s reported net interest expense for such reporting year of such group. The term reported net interest expense means— with respect to any international financial reporting group for any reporting year, the excess of— the aggregate amount of interest expense reported in such group’s applicable financial statements for such taxable year, over the aggregate amount of interest income reported in such group’s applicable financial statements for such taxable year, and with respect to any specified domestic corporation for any reporting year, the excess of— the amount of interest expense of such corporation reported in the books and records of the international financial reporting group which are used in preparing such group’s applicable financial statements for such taxable year, over the amount of interest income of such corporation reported in such books and records. With respect to any specified domestic corporation which is a member of any international financial reporting group, such corporation’s allocable share of such group’s reported net interest expense for any reporting year is the portion of such expense which bears the same ratio to such expense as— the EBITDA of such corporation for such reporting year, bears to the EBITDA of such group for such reporting year. The term EBITDA means, with respect to any reporting year, earnings before interest income and interest expense, taxes, depreciation, depletion, and amortization— as determined in the international financial reporting group’s applicable financial statements for such year, or as determined in the books and records of the international financial reporting group which are used in preparing such statements if not determined in such statements. The EBITDA of any specified domestic corporation shall be determined on a stand-alone basis and without regard to any distribution received by such corporation from any other member of the international financial reporting group. In the case of any international financial reporting group the EBITDA of which is zero or less, paragraph
(1)shall not apply to any specified domestic corporation which is a member of such group. In the case of any specified domestic corporation the EBITDA of which is zero or less, the allowable percentage shall be 0 percent. For purposes of this subsection, the term applicable financial statement has the meaning given such term in section 451(b)(3). For purposes of this subsection, the term reporting year means any year for which an applicable financial statement is prepared or required to be prepared. The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which— allows or requires the adjustment of amounts reported on applicable financial statements, allows or requires any corporation to be included or excluded as a member of any international financial reporting group for purposes of any determination or calculation under this subsection, treats interest income of a controlled foreign corporation which is subpart F income, and any interest expense of such corporation which is related to subpart F income, as income and interest expense, respectively, of a specified domestic corporation for purposes of this subsection, prevents the omission, inclusion, or duplication of any item or amount of interest income or interest expense, and provides rules for the application of this subsection with respect to— a domestic corporation that is a partner (directly or indirectly) in a partnership, a domestic corporation that owns (directly or indirectly) an interest in an entity that is fiscally transparent in one or more jurisdictions, and a foreign corporation to which this subsection applies by reason of paragraph (2)(C). . Section 163(j)(4) is amended to read as follows: In the case of any partnership or S corporation, this subsection shall be applied at the partner or shareholder level, respectively. In the case of any partnership or S corporation which does not meet the gross receipts test of section 448(c) for any taxable year, paragraph
(3)shall not apply with respect to any distributive, or pro rata, share of business interest and other items under this subsection of such partnership or S corporation. The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance— for requiring or restricting the allocation of business interest and other items under this subsection, to provide for such reporting requirements as the Secretary determines appropriate, and for the application of this subsection in the case of tiered structures or trades or businesses described in paragraph (7). . Section 163(j)(3) is amended by inserting except to the extent provided in paragraph (4)(B) after to such taxpayer for such taxable year . Section 163 is amended by inserting after subsection (n), as added by subsection (a), the following new subsection: The amount of any interest not allowed as a deduction for any taxable year by reason of subsection
(j)or (n)(1) (whichever imposes the lower limitation with respect to such taxable year) shall be treated as interest (and as business interest for purposes of subsection
(j)to the extent such amount is properly attributable to a trade or business as defined in subsection (j)(7)) paid or accrued in the succeeding taxable year. . Section 163(j)(2) is amended to read as follows: For carryforward treatment, see subsection (o). . Section 381(c)(20) is amended to read as follows: The carryover of disallowed interest described in section 163(o) to taxable years ending after the date of distribution or transfer. . Section 382(d)(3) is amended to read as follows: The term pre-change loss shall include any carryover of disallowed interest described in section 163(o) under rules similar to the rules of paragraph (1). . The amendments made by this section shall apply to taxable years beginning after December 31, 2022. In the case of a partner’s first succeeding taxable year described in subclause
(II)of section 163(j)(4)(B)(ii) of the Internal Revenue Code of 1986 (as in effect before the amendment made by subsection (b)) which begins after December 31, 2022, the amount of excess business interest which would (but for such amendment) be carried to such taxable year under such subclause shall be treated as interest (and as business interest for purposes of section 163(j) of such Code, as amended by this section) paid or accrued in such taxable year. A rule similar to the rule in the preceding sentence shall apply in the case of an S corporation and its shareholders. For carryover of any such interest disallowed for such taxable year, see section 163(o) of such Code, as amended by this section.