SECTION 7. DETERMINING AFSI

WITH RESPECT TO CERTAIN FOREIGN CORPORATIONS

.01 Purpose . The Treasury Department and the IRS intend to propose rules in forthcoming proposed regulations consistent with the interim guidance provided in

this section 7, which provides Taxpayers with additional clarity in determining AFSI with respect to certain foreign corporations prior to forthcoming proposed regulations.

.02 Application of § 56A(c) in respect of certain foreign corporations .

(1) Interaction of § 56A(c)(2)(C) and (c)(3) . A Taxpayer that is a U.S. Shareholder (as defined in section 2.03(5) of this notice) of a CFC (as defined in section 2.03(5) of this notice) must apply both § 56A(c)(2)(C) and (c) (3) to determine its AFSI with respect to such CFC.

(2) Section 56A(c)(3) adjustment deter- mined on aggregate basis . A Taxpayer that is a U.S. Shareholder of multiple CFCs makes a single adjustment under § 56A(c) (3)(A) that is equal to the sum of its pro rata share of the Adjusted Net Income or Loss (as defined in section 2.03(5) of this notice) of each CFC of which the Taxpayer is a U.S. Shareholder. If the amount of such single adjustment would be negative, no amount is taken into account under § 56A(c)(3) for such taxable year. See § 56A(c)(3)(B)(i).

(3) Financial statement income or loss of a CFC that is a partner in any part- nership or the owner of any disregarded entity . If a CFC is a partner in any partnership or the owner of any disregarded entity, the items taken into account in computing the CFC’s Adjusted Net Income or Loss must include the CFC’s distributive share of AFSI of any such partnership (as determined under § 56A(c)(2)(D), regulations, or other guidance) and the FSI of any such disregarded entity, as adjusted under rules similar to those that apply in determining AFSI.

(4) Application of income tax treaties . For purposes of applying § 56A(c)(4), in the case of a foreign corporation that qualifies for and claims the benefits of the business profits provisions of an applicable income tax treaty, the principles of those provisions apply in determining the foreign corporation’s AFSI.

(5) Interaction of § 56A(c)(3) and (c) (4) . A CFC’s Adjusted Net Income or Loss is not limited to the amount of AFSI of the CFC that would be determined if only § 56A(c)(4) and application of section 7.02(4) of this notice were taken into account. Additionally, if a CFC is

Bulletin No. 2023–40 981 October 2, 2023

an Applicable Corporation, the CFC’s Adjusted Net Income or Loss is reduced by the amount of AFSI of the CFC (determined by taking into account § 56A(c)(4) as applied by taking into account section 7.02(4) of this notice).