Non-US headquartered service companies operating in the United States could find their business operations negatively affected by the BEAT because deductible payments they make to non-US related parties, such as interest, royalties, or service payments, may be subject to the tax.
The BEAT’s application to US inbound service companies could result in a significant increase in the cost of doing business in the United States for them. These companies should review their current intercompany service agreements to determine first, whether any services fall under the SCM exception, and second, whether they are performed at cost or with a markup. Because currently there is no guidance from the Treasury and IRS on the precise meaning and intent of the language in Section 59A, it is possible that the entire amount of services falling under the SCM exception, and which include a markup, is subject to the BEAT. These companies should begin to explore potential transactional and structural changes to their business operations that may help reduce their liability under the BEAT.