The Inflation Reduction Act (IRA) of 2022 introduces a new 15% corporate alternative minimum tax (AMT). While Corporate AMT is effective for tax years beginning after December 31, 2022, it may impact assessing the recoverability of deferred tax assets during the period that includes the enactment date.
Inflation Reduction Act introduces new AMT
The Inflation Reduction Act of 2022 introduced a new 15% Corporate AMT levied on certain large corporations.
Under the new law, a company’s minimum tax is equal to the amount by which the tentative minimum tax (15% of adjusted financial statement income reduced by AMT foreign tax credits) exceeds the company’s regular tax for the year – including any Base Erosion and Anti-Abuse Tax (BEAT) liability, but before the consideration of general business credits.
Companies may claim a credit against regular tax in future years for Corporate AMT previously paid, but the credit cannot reduce that future year’s tax liability below the computed minimum tax for that year. A company's Corporate AMT credit carryforward has an indefinite life.
Accounting impact on assessing the recoverability of deferred tax assets under IFRS Accounting Standards
Unlike US GAAP, under IFRS Accounting Standards a company should consider whether it will be subject to the Corporate AMT when assessing to what extent deductible temporary differences and unused tax losses under the regular tax will be realized in the future.
If a company’s projections of future taxable profits indicate that a certain amount of deductible temporary differences and unused tax losses will not be realized because the company expects to be subject to the Corporate AMT, it should take that into account when accounting for the deferred tax assets consistent with its expected manner of recovery.
Any changes in the amount that can be realized should be recognized in the period that includes the August 16, 2022 enactment date.