Treasury and the IRS on September 1 released Final Regulations (the 2020 Final Regulations) for the Base Erosion and Anti-Abuse Tax (BEAT) under Section 59A as enacted by the 2017 tax reform legislation (the Act). The BEAT rules require certain corporations to pay a minimum tax on taxable income as computed without certain deductions for certain payments to foreign related parties.
The BEAT is of importance for US inbound companies, with the characterization of base eroding payments being especially significant. The 2020 Final Regulations contain additional changes that may have a material impact on US inbound companies. US inbound companies may find BEAT relief in the form of a waiver election, and also will be interested in clarifications to the aggregate group rules.
The BEAT essentially is intended to ensure that taxpayers doing business within the United States pay a 10% minimum tax if deductions from base erosion payments exceed a threshold percentage of total deductions in any tax year with certain limitations.
The 2020 Final Regulations provide additional guidance related to the determination of a taxpayer’s aggregate group for purposes of determining gross receipts and the base erosion percentage; an election to waive deductions for purposes of the BEAT; the application of the BEAT to partnerships; the anti-abuse rule with respect to certain basis step-up transactions; and reference the possibility for future guidance relating to the qualified derivative payment (QDP) reporting requirements. Taxpayers should assess the impact of the 2020 Final Regulations on their structures.