Proposed BEAT regulations address certain insurance issues

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January 2019

Overview

Treasury has released proposed regulations (the Proposed Regulations) for the Base Erosion and Anti-Abuse Tax (BEAT) under new Section 59A. The BEAT is a minimum tax that certain corporations are required to pay on payments to non-US related parties. The Proposed Regulations, released on December 13, 2018, are the first regulatory guidance under Section 59A, which was enacted by the 2017 tax reform legislation (the Act).

The regulations generally provide guidance with respect to several aspects of the BEAT provisions, two of which are particularly important to insurers: (1) rules for determining whether a taxpayer is an applicable taxpayer subject to the BEAT provisions, and (2) rules for determining the BEAT liability.  (For general coverage of the Proposed Regulations, and prior coverage on the Act, refer to the ‘See also’ section at the end of this document.)

The new regulations generally are proposed to apply to tax years beginning after December 31, 2017.  Treasury states that taxpayers may rely on the Proposed Regulations until final Section 59A regulations are published, provided that the taxpayer and all related parties consistently apply the Proposed Regulations.

The takeaway

The Proposed Regulations, provide guidance related to the mechanics of determining a taxpayer’s BEAT liability and clarify the application of Section 59A to partnerships, banks, registered security dealers, and US consolidated groups. Multinational insurance companies should consider taking the following actions:

  • Comment on open issues that might be of interest to them, such as: application of the rules to certain netting arrangements; modified coinsurance; claims and other payments to foreign related parties; which items are deductions versus reductions in gross income and therefore may not give rise to a base erosion payment; recognition of transactions between a US branch and its head office, etc.;
  • Revise their models for computations and projections of the BEAT in light of the Proposed Regulations;
  • Continue to evaluate whether any transactions with foreign related parties should be terminated/revised due to BEAT (such as quota share reinsurance contracts or intercompany financing). Consider arrangements through which BEAT exposure could be reduced in accordance with business purpose and economic substance principles, bearing in mind regulatory, rating agency, and capital constraints, general business considerations, costs of implementation and operations, financial impact, transfer pricing, and the BEAT and other anti-base-erosion provisions;
  • Evaluate whether there is sufficient documentation to qualify service payments for the SCM exception where applicable;
  • Analyze whether intercompany transactions are appropriately transfer priced;
  • Evaluate whether any use of intermediaries may be viewed as creating a BEAT exposure under common-law doctrines and/or the anti-abuse provisions in the Proposed Regulations;
  • Determine whether a foreign related party may make a Section 953(d) election or have effectively connected income as a planning approach so that payments are not considered base erosion payments.

See also:

PwC Tax Insight: Treasury issues proposed BEAT rules

PwC Tax Insight: Preliminary highlights of the proposed BEAT regulations

Form 8991

PwC Tax Insight: IRS releases draft Section 59A form for computing BEAT

PwC Tax InsightTaxpayers may be able to reduce BEAT liability by increasing cost of goods sold

PwC Tax Insight: Proposed revisions to US tax code would significantly impact inbound companies

PwC Tax Insight: Republican tax bill will significantly impact US international tax rules

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Julie Goosman

Insurance Tax Leader, PwC US

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