IRS Issues BEAT Regulations
The United States Internal Revenue Service has issued final regulations and proposed regulations on the base erosion and anti-abuse tax (BEAT) under section 59A of the tax code, which provide guidance for taxpayers affected by the tax provision.
Added to the tax code by the Tax Cuts and Jobs Act of 2017, the BEAT is designed to penalize those companies that make deductible payments to foreign affiliates to substantially reduce their exposure to US taxation. The BEAT is calculated by adding back certain deductible payments made to foreign affiliates and applying a minimum tax to a percentage of the difference between the taxpayer’s modified taxable income and their regular tax liability, at a rate of five percent for 2018, 10 percent from 2019, and 12.5 percent from 2025.
The provision primarily affects corporate taxpayers with gross receipts averaging more than USD500m over a three-year period who make deductible payments to foreign related parties. When applicable, this tax is in addition to the taxpayer’s regular tax liability.
According to the IRS, the regulations published on December 2 provide detailed guidance regarding which taxpayers will be subject to section 59A, the determination of a base erosion payment, and the method for calculating the base erosion minimum tax amount and from such the relevant tax liability.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look