Friday, December 21, 2018
On December 13, 2018, the United States Internal Revenue Service issued proposed regulations on the operation of the base erosion and anti-abuse tax (BEAT), contained in Section 59A of the Internal Revenue Code.
Added to the tax code by the Tax Cuts and Jobs Act of 2017, Section 59A is a minimum tax provision, 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. This rate will rise to 10 percent in 2019 and to 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.
The proposed regulations provide detailed guidance regarding which taxpayers will be subject to Section 59A, the determination of what is a base erosion payment, the method for calculating the base erosion minimum tax amount, and the required base erosion and anti-abuse tax resulting from that calculation.
The IRS is welcoming comments on the proposed regulations. These must be submitted within 60 days of their publication in the Federal Register.