Par. 10. Sections 1.59-2 through 1.59-4 are added to read as follows:
(a) Overview. This section provides rules under section 59(k) of the Code for determining a foreign-parented multinational group (FPMG) for purposes of sections 53 and 55 through 59 of the Code and §§ 1.56A-1 through 1.56A-27, 1.59-2, this section, and §§ 1.59-4, 1.1502-53, and 1.1502-56A. Paragraph (b) of this section provides definitions that apply for purposes of this section. Paragraph (c) of this section provides the rules for determining an FPMG. Paragraph (d) of this section describes the treatment of a U.S. trade or business. Paragraph (e) of this section provides for the treatment of certain parent entities as foreign corporations. Paragraph (f) of this section defines the term controlling interest. Paragraph (g) of this section defines the term applicable financial accounting standard. Paragraph (h) of this section defines the term included in the same applicable financial statement for that taxable year. Paragraph (i) of this section specifies who is a member of an FPMG. Paragraph (j) of this section provides examples illustrating the application of the rules in this section. Paragraph (k) of this section provides the applicability date of this section.
(b) Definitions. The following definitions apply for purposes of this section. Terms used in this section that are not defined in this section have the meanings provided in § 1.56A-1(b).
(1) Applicable financial accounting standard for that taxable year. The term applicable financial accounting standard for that taxable year has the meaning provided in paragraph (g) of this section.
(2) Controlling interest. The term controlling interest has the meaning provided in paragraph (f) of this section.
(3) Deemed domestic corporation. The term deemed domestic corporation has the meaning provided in paragraph (d) of this section.
(4) Deemed foreign corporation. The term deemed foreign corporation means any entity treated as a foreign corporation under paragraph (e) of this section.
(5) Domestic corporation. The term domestic corporation includes any domestic corporation for regular tax purposes, as well as any deemed domestic corporation, except as otherwise provided in this section.
(6) Entity. The term entity means any CAMT entity and any deemed domestic corporation. Any disregarded entity or branch that is owned by a CAMT entity (including through ownership of one or more disregarded entities or branches) is treated as part of that CAMT entity, except to the extent the disregarded entity or branch is a deemed domestic corporation.
(7) Foreign corporation. The term foreign corporation includes any foreign corporation for regular tax purposes, as well as any deemed foreign corporation, except as otherwise provided in this section.
(8) Foreign-parented multinational group (FPMG). The term FPMG has the meaning provided in paragraph (c) of this section.
(9) FPMG common parent. The term FPMG common parent means an ultimate parent that is a foreign corporation.
(10) Included in the same applicable financial statement for that taxable year. The term included in the same applicable financial statement for that taxable year has the meaning provided in paragraph (h) of this section.
(11) Section 52 group. The term section 52 group means, with respect to a person, that person and the group of persons whose AFSI is required to be aggregated with the AFSI of that person under § 1.59-2(c)(1)(ii)(A).
(12) Ultimate parent. The term ultimate parent means an entity that has a controlling interest in at least one other entity and in which no entity has a controlling interest.
(c) FPMG. For purposes of this section, the term FPMG means, with respect to any taxable year of a corporation, two or more entities, one of which is the corporation, if—
(1) At least one of the entities is a domestic corporation and at least one of the entities is a foreign corporation;
(2) The entities are included in the same applicable financial statement for that taxable year; and
(3) One of the entities is an FPMG common parent.
(d) Treatment of U.S. trade or business as separate domestic corporation. For purposes of this section, if a foreign corporation (excluding a deemed foreign corporation) is or is treated as engaged in a trade or business within the United States for purposes of section 882 of the Code (including through one or more disregarded entities or pass-through entities), the trade or business will be treated as a separate domestic corporation (a deemed domestic corporation) that is wholly owned by the foreign corporation.
(e) Treatment of certain ultimate parents as foreign corporations. For purposes of this section, an ultimate parent that is not a corporation (determined without regard to this paragraph (e)) is treated as a foreign corporation if—
(1) The ultimate parent directly or indirectly owns (other than through a domestic corporation, excluding a deemed domestic corporation) a foreign trade or business (as defined in § 1.989(a)-1(c)); or
(2) The ultimate parent directly or indirectly owns (other than through a domestic corporation, excluding a deemed domestic corporation) any equity interest in a foreign corporation and the ultimate parent has a controlling interest (including through a domestic corporation) in such foreign corporation.
(f) Controlling interest —(1) In general. An entity (upper-tier entity) has a controlling interest in another entity (lower-tier entity) if the applicable financial accounting standard requires that a consolidated financial statement of the upper-tier entity reflects the assets, liabilities, equity, income, and expenses of the lower-tier entity (regardless of whether or not a consolidated financial statement is or is required to be prepared or is prepared correctly).
(2) Treatment of certain entities. For purposes of this section, an upper-tier entity has a controlling interest (if it does not otherwise have a controlling interest under the applicable financial accounting standard) in any of the following entities—
(i) A deemed domestic corporation if either—
(A) The upper-tier entity is the foreign corporation; or
(B) The upper-tier entity has a controlling interest in the foreign corporation;
(ii) Any entity if—
(A) The entity and the upper-tier entity are in the same section 52 group;
(B) The upper-tier entity directly or indirectly (through one or more CAMT entities) owns an interest in the entity; and
(C) The upper-tier entity is a member of an FPMG without regard to this paragraph (f)(2)(ii); or
(iii) Any entity in which the upper-tier entity would be treated as having a controlling interest but for the fact that the entity is (or would be) excluded from the upper-tier entity's consolidated financial statement under the applicable financial accounting standard—
(A) Based on size or materiality;
(B) Because the entity is held for sale;
(C) Because the entity or business of the entity is winding down, liquidating, or otherwise ceasing operations or being terminated or disposed of; or
(D) Because the entity is permitted but not required to be excluded under the applicable financial accounting standard from a consolidated financial statement of the upper-tier entity, regardless of whether or not a consolidated financial statement is (or is required to be) prepared.
(3) Tiered controlling interests. For purposes of this section, if an upper-tier entity has a controlling interest in a lower-tier entity, the upper-tier entity will also have a controlling interest in any entity in which the lower-tier entity has a controlling interest under paragraph (f)(2)(ii) of this section. This rule applies iteratively, starting at the bottom of the controlling interest chain and ending with the FPMG common parent.
(g) Applicable financial accounting standard —(1) In general. For purposes of this section, the term applicable financial accounting standard means GAAP except as provided in paragraph (g)(2) of this section.
(2) Exceptions —(i) Rules for applying exceptions. The exceptions in paragraphs (g)(2)(ii) and (iii) of this section apply in descending order of priority. For example, if an applicable financial accounting standard is determined pursuant to paragraph (g)(2)(ii) of this section, then paragraph (g)(2)(iii) of this section does not apply. Similarly, if an applicable financial accounting standard is determined pursuant to paragraph (g)(2)(iii)(A) of this section, then paragraph (g)(2)(iii)(B) of this section does not apply. For purposes of this paragraph (g)(2), all references to an ultimate parent are to the ultimate parent as determined by treating the accounting standard used to prepare the relevant consolidated financial statement as the applicable financial accounting standard. For example, in paragraph (g)(2)(ii) of this section, the ultimate parent of a consolidated financial statement described in § 1.56A-2(c)(2)(i) is determined by treating IFRS as the applicable financial accounting standard and, in paragraph (g)(2)(iii)(B) of this section, each of the ultimate parents would be determined based on the accounting standard used to prepare the applicable consolidated financial statement. If the assets, liabilities, equity, income, and expenses of a corporation are reflected in a consolidated financial statement described in § 1.56A-2(c)(1) (qualifying GAAP financial statement) that is of its ultimate parent, the exceptions in this paragraph (g)(2) do not apply.
(ii) IFRS. If the assets, liabilities, equity, income, and expenses of a corporation are reflected in a consolidated financial statement described in § 1.56A-2(c)(2)(i) that is of its ultimate parent, then the applicable financial accounting standard means the accounting standard used to prepare that consolidated financial statement.
(iii) Other accounting standard —(A) Single accounting standard. If the assets, liabilities, equity, income, and expenses of a corporation are reflected in a single consolidated financial statement described in § 1.56A-2(c)(3)(i) that is of its ultimate parent, then the applicable financial accounting standard means the accounting standard used to prepare that consolidated financial statement.
(B) Multiple accounting standards. If the assets, liabilities, equity, income, and expenses of a corporation are reflected in more than one consolidated financial statements described in § 1.56A-2(c)(3)(i) that are of their ultimate parents and all of those consolidated financial statements have the same ultimate parent (each, a parented financial statement), then the applicable financial accounting standard means:
( 1 ) If the accounting standard used to prepare one of those parented financial statements was the applicable financial accounting standard in the prior taxable year, that accounting standard; and
( 2 ) If no accounting standard is described in paragraph (g)(2)(iii)(B)( 1 ) of this section, the accounting standard chosen by the corporation from among the accounting standards used to prepare those parented financial statements, provided that the choice of accounting standard is specified on a statement attached to the Form 4626, Alternative Minimum Tax-Corporations (or any successor form), of the corporation or as otherwise directed in the instructions to the form for the first applicable taxable year (statement requirement). If the corporation does not choose an accounting standard, chooses one that is not permitted, or fails to satisfy the statement requirement and does not establish to the Commissioner's satisfaction that the corporation has used the chosen applicable financial accounting standard, the Commissioner has discretion either to treat the applicable financial accounting standard as GAAP or to treat the applicable financial accounting standard as one of the accounting standards used to prepare one of those parented financial statements.
(3) Reflected in a consolidated financial statement. For purposes of this paragraph (g), the assets, liabilities, equity, income, and expenses of a corporation are treated as reflected in a consolidated financial statement if either they are reflected in the consolidated financial statement, or they would have been reflected in the consolidated financial statement but for the entity being excluded for a reason specified in paragraphs (f)(2)(iii)(A) through (D) of this section.
(4) Disclosure requirement. The corporation must specify the applicable financial accounting standard on a statement attached to the Form 4626 (or any successor form) of the corporation or as otherwise directed in the instructions to the form for each taxable year the applicable financial accounting standard is relevant in determining if the corporation is a member of an FPMG.
(h) Included in the same applicable financial statement for that taxable year. For purposes of this section, the FPMG common parent and all entities in which the FPMG common parent has a controlling interest at any time during the taxable year are treated as included in the same applicable financial statement for that taxable year. For purposes of this paragraph (h), it is irrelevant whether a consolidated financial statement of the FPMG common parent is prepared or whether a particular entity is reflected in the consolidated financial statement of the FPMG common parent or would be reflected if a consolidated financial statement of the FPMG common parent were prepared. The entities included in the same applicable financial statement for that taxable year for this purpose may differ from the entities included in the applicable financial statement(s) determined under § 1.56A-2.
(i) Member of an FPMG. Each entity included in the same applicable financial statement for that taxable year as the FPMG common parent is a member of that FPMG (including the FPMG common parent).
(j) Examples. The following examples illustrate the application of the rules in this section.
(1) Example 1: Determining if there is an FPMG and its members when there is a single foreign corporation that is engaged in U.S. trade or business —(i) Facts. FC is a foreign corporation engaged in a trade or business in the United States for purposes of section 882 of the Code. FC does not own an interest in any entity. FC does not have a controlling interest in any entity under its applicable financial accounting standard and does not prepare a consolidated financial statement. No entity has a controlling interest in FC, within the meaning of paragraph (f) of this section, and FC is not a member of any section 52 group. FC is being tested for applicable corporation status.
(ii) Analysis. Under paragraph (d) of this section, the U.S. trade or business is treated as a separate domestic corporation that is wholly owned by FC (the deemed domestic corporation, DC). Under paragraph (f)(2) of this section, FC is treated as having a controlling interest in DC because DC and FC are described in paragraph (d) of this section. As a result, FC is an ultimate parent under paragraph (b)(12) of this section because it has a controlling interest in DC and no entity has a controlling interest in it. Because FC is the ultimate parent and a foreign corporation, it is the FPMG common parent under paragraph (b)(9) of this section. Under paragraph (h) of this section, FC and DC are treated as included in the same applicable financial statement for that taxable year because FC, the FPMG common parent, has a controlling interest in DC. As a result, there is an FPMG comprised of FC and DC under paragraph (c) of this section because the following three requirements are satisfied: there is at least one foreign corporation (FC) and one domestic corporation (DC); the entities (FC and DC) are included in the same applicable financial statement for that taxable year; and one of the entities (FC) is an FPMG common parent.
(2) Example 2: Partnership treated as a deemed foreign corporation —(i) Facts. PRS is a partnership that directly owns all the stock of X, a domestic corporation, and 15% of the stock of FC, a foreign corporation. The remaining 85% of the stock of FC is directly owned by X. PRS is the ultimate parent and has a controlling interest in X and FC.
(ii) Analysis. PRS is treated as a foreign corporation under paragraph (e) of this section because the following three requirements of paragraph (e)(2) of this section are satisfied: PRS is the ultimate parent; PRS owns an interest in FC that is not owned through a domestic corporation; and PRS has a controlling interest in FC because of its direct interest in FC and its indirect interest in FC through X.
(3) Example 3: Controlling interest —(i) Facts. FC is a foreign corporation that is not required (for example, by regulators or creditors) to prepare a consolidated financial statement and therefore does not prepare a consolidated financial statement. FC directly owns 100% of the stock of X, and X directly owns 100% of the stock of Y. X and Y are domestic corporations. Y is held for sale. If FC were to prepare a consolidated financial statement under GAAP, FC would be required to reflect the assets, liabilities, equity, income, and expenses of X but not Y. However, if Y were not held for sale, FC also would be required to reflect the assets, liabilities, equity, income, and expense of Y on its consolidated financial statement under GAAP.
(ii) Analysis. Under paragraph (g) of this section, the applicable financial accounting standard is GAAP because FC does not prepare a consolidated financial statement and therefore none of the exceptions in paragraph (g)(2) of this section apply. FC has a controlling interest in X under paragraph (f)(1) of this section because the applicable financial accounting standard (which is GAAP) requires that FC's consolidated financial statement include the assets, liabilities, equity, income, and expenses of X. Neither the fact that no consolidated financial statement is required to be prepared nor the fact that no consolidated financial statement is prepared is relevant to the controlling interest determination under paragraph (f) of this section. FC also has a controlling interest in Y under paragraph (f)(2)(iii) of this section because Y would have been included on FC's consolidated financial statement under the applicable financial accounting standard (GAAP) but for being excluded because Y was held for sale, and therefore FC would have had a controlling interest under the applicable financial accounting standard (GAAP) but for the exclusion. Therefore, for purposes of this section, FC has a controlling interest in X and Y.
(4) Example 4: Determining the members of an FPMG —(i) Facts. FC is a foreign corporation. FC has a controlling interest under paragraph (f)(1) of this section in X and A and under paragraph (f)(2)(iii) of this section in B and C. No entity has a controlling interest in FC, and FC does not have any controlling interests other than those specified. In addition, B is part of a section 52 group that includes B, D, and E, and B owns an interest in each of D and E. X is a domestic corporation.
(ii) Analysis —(A) FPMG membership determined without regard to paragraph (f)(2)(ii) of this section. In determining whether an upper-tier entity has a controlling interest in a lower-tier entity, paragraph (f)(2)(ii) of this section applies only if the upper-tier entity is a member of an FPMG without regard to paragraph (f)(2)(ii) of this section. Accordingly, the first step in determining whether an upper-tier entity may have a controlling interest in a lower-tier entity under paragraph (f)(2)(ii) of this section is to determine whether the upper-tier entity is a member of an FPMG without regard to paragraph (f)(2)(ii) of this section. Without regard to paragraph (f)(2)(ii) of this section, FC is the ultimate parent under paragraph (b)(12) of this section because FC has a controlling interest in X, A, B, and C and no entity has a controlling interest in FC. Because FC is the ultimate parent and a foreign corporation, it is the FPMG common parent under paragraph (b)(9) of this section. Under paragraph (h) of this section, FC, X, A, B, and C are included in the same applicable financial statement for that taxable year because FC is the FPMG common parent and has a controlling interest in X, A, B, and C. There is an FPMG because the requirements of paragraph (c) of this section are satisfied: there is at least one domestic corporation (X) and at least one foreign corporation (FC); the entities are included in the same applicable financial statement for that taxable year; and FC is an FPMG common parent. The members of the FPMG under paragraph (i) of this section are FC, X, A, B, and C.
(B) FPMG membership determined taking into account paragraph (f)(2)(ii) of this section. After determining if there is an FPMG and the members of the FPMG without regard to paragraph (f)(2)(ii) of this section, paragraph (f)(2)(ii) of this section needs to be taken into account to determine whether there are any additional members. Under paragraphs (f)(2)(ii) and (f)(3) of this section, if an entity is owned by a member of the FPMG without regard to paragraph (f)(2)(ii) of this section, is part of the same section 52 group, and the FPMG member directly or indirectly owns an interest in the entity, the FPMG common parent will have a controlling interest in the entity. B is a member of the FPMG without regard to paragraph (f)(2)(ii) of this section. B is in the same section 52 group as D and E. B owns an interest in D and E. Consequently, FC has a controlling interest in D and E under paragraphs (f)(2)(ii) and (f)(3) of this section. As a result, because all entities in which the FPMG common parent has a controlling interest are included in the same applicable financial statement for that taxable year under paragraph (h) of this section, D and E are included in the same applicable financial statement for that taxable year as FC, X, A, B, and C. Therefore, the members of the FPMG under paragraph (i) of this section are FC, X, A, B, C, D, and E. This result is not dependent on which entity is being tested for applicable corporation status.
(5) Example 5: Determining the applicable financial accounting standard —(i) Facts. X, a domestic corporation, is the corporation who is being tested for applicable corporation status. X owns interests in A and B. X is owned by FC, a foreign corporation, and FC owns interests in other entities. Country A is a foreign country. FC is listed on a stock exchange in Country A and required to file a consolidated financial statement of FC under the generally accepted accounting principles of Country A (Country A Accounting Standard) with the agency of Country A that is equivalent to the United States Securities and Exchange Commission (SEC) (Agency A). FC files the required audited consolidated financial statement that is certified (within the meaning of § 1.56A-3(d)) with Agency A. FC is the ultimate parent under Country A Accounting Standard. In addition, an audited consolidated financial statement is prepared in accordance with GAAP that is certified (within the meaning of § 1.56A-3(d)) and includes the assets, liabilities, equity, income, and expenses of only X, A, and B. Under GAAP, the ultimate parent is FC. Further, an audited consolidated financial statement is prepared in accordance with IFRS that is certified (within the meaning of § 1.56A-3(d)) and includes the assets, liabilities, equity, income, and expenses of X; however, it is not filed with the SEC or an agency of a foreign government that is equivalent to the SEC. The financial statements described in this paragraph (j)(5) are the only consolidated financial statements that are prepared that include the assets, liabilities, equity, income, and expenses of X.
(ii) Analysis. Unless an exception applies, the applicable financial accounting standard is GAAP. If there is a GAAP consolidated financial statement that meets the description in the last sentence of paragraph (g)(2)(i) of this section, then none of the exceptions in paragraph (g)(2) of this section can apply and therefore the default rule in paragraph (g)(1) of this section that the applicable financial account standard is GAAP applies. As FC is the ultimate parent under GAAP and there is not a GAAP consolidated financial statement that includes the assets, liabilities, equity, income, and expenses of FC, an exception may apply. As provided in paragraph (g)(2)(i) of this section, the exceptions apply in descending order. Therefore, the exception in paragraph (g)(2)(ii) of this section is tested first. In this case, there is not an IFRS consolidated financial statement that is described in § 1.56A-2(c)(2)(i) because the IFRS consolidated financial statement is not filed with the SEC or an agency of a foreign government that is equivalent to the SEC. Because the exception in paragraph (g)(2)(ii) of this section does not apply, the exception in paragraph (g)(2)(iii)(A) of this section is tested next. There is only one consolidated financial statement described in § 1.56A-2(c)(3)(i), and that consolidated financial statement is filed with Agency A and is of FC, the ultimate parent under Country A Accounting Standard. As a result, the exception applies, and the applicable financial accounting standard is Country A Accounting Standard.
(k) Applicability date. This section applies to taxable years of the corporation determining its applicable corporation status ending after September 13, 2024.