Taxpayers may be able to reduce BEAT liability by increasing cost of goods sold
June 2018
Overview
The base erosion and anti-abuse tax (BEAT) imposes a tax on base erosion payments, which include amounts a taxpayer pays or accrues to a related foreign person that the taxpayer may deduct. Taxpayers may be able to reduce BEAT liability by recovering costs as cost of goods sold, which are subtracted from gross receipts and are not deductions, particularly by using the uniform capitalization (UNICAP) rules under Section 263A.
The takeaway
Taxpayers may want to review their costs to identify amounts paid or accrued to related foreign persons that may be capitalizable to inventory and recovered through COGS, which may reduce their BEAT exposure.
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