The BEAT applies to corporations with average annual gross receipts in excess of $500 million and whose “Base Erosion Percentage” is greater than 3% (2% for a bank or registered securities dealer). The bill also introduces a myriad of new terms and definitions (see below).
- The Base Erosion Anti-Abuse tax is 10% of the corporate taxpayers “Modified Taxable Income” over an amount equal to its regular tax liability reduced by credits allowed under Chapter 1 (but not reduced below zero) over the sum of the General Business Credits (Section 38 Credits) allocable to the Research Credit plus “applicable Section 38 Credits.”
- The BEAT is 1% higher for banks and registered securities dealers. The BEAT will increase by 2.5% (to 12.5% and 13.5%) in 2025.
- The BEAT applies to base erosion payments paid or accrued in taxable years beginning after December 31, 2017.
What can you do to prepare for the BEAT?
- Confirm your three-year Average Gross Receipts are greater than $500 million and calculate your Base Erosion Percentage.
- Review all payments to foreign related parties and the U.S. tax thereon then calculate the Base Erosion Tax Benefit based upon the U.S. tax on said payments.
- Determine if your Modified Taxable Income will result in the BEAT.
|Base Erosion Tax Benefits||The tax deduction received for a “Base Erosion Payment”. The payment is included in proportion to the actual rate of US tax imposed on the payment to 30% (e.g., if the actual tax on the payment is 15% per treaty, then 50% of the payment would constitute a Base Erosion Tax Benefit).|
|Base Erosion Payment||
|Applicable Section 38 Credits||
|Surrogate Foreign Corporation||A foreign entity completes the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation of substantially all of the properties constituting a trade or business of a domestic partnership if after the acquisition 60% of the ownership (stock or partnership interest) are held by former shareholders or partners and the expanded affiliated group does not have substantial business activities in the foreign country where the foreign entity is created or organized.|
How Can We Help?