Tax reform readiness: Base erosion and anti-abuse tax

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February 2018


The 2017 tax reform reconciliation act (the Act) — the largest overhaul of the US tax code (the Code) in 31 years — targets US tax-base erosion by imposing an additional tax liability on certain corporations that make ‘base-erosion payments’ to related foreign persons.

The new base erosion and anti-abuse tax (BEAT) essentially is a minimum tax calculated on a base equal to the taxpayer’s taxable income determined without regard to (1) the tax benefits arising from base erosion payments and (2) the base erosion percentage of any net operating loss (NOL) allowed for the tax year.  The BEAT rate is five percent for tax years beginning in calendar year 2018, 10 percent for tax years beginning in 2019 through 2025, and 12.5 percent for tax years beginning after December 31, 2025.  Those BEAT rates increase by one percent for certain banks and securities dealers.

This Insight reviews the basics of the new BEAT provisions. PwC on January 31 hosted a webcast featuring PwC specialists who provided in-depth analysis of, and insight into, the BEAT provision. Watch the webcast replay and register for future webcasts in PwC’s Tax Reform Readiness webcast series, in which PwC specialists will discuss additional key provisions of the Act and the latest administrative guidance under those provisions. The next webcast, ‘Tax reform readiness: Tax reform's impact and opportunities for US taxpayers,’ will take place February 7, 2018, from 2:00 PM - 3:00 PM (EST).


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The takeaway

The BEAT raises many issues that will require taxpayers to make reasoned interpretations of the law pending Treasury and IRS guidance. We expect guidance on the BEAT later this year.

Taxpayers should consider taking the following actions:

  • identifying transactions that could be subject to the BEAT
  • performing detailed computational modeling of the BEAT and other provisions of the Act
  • evaluating operating models and business practices such as arrangements set up for the convenience of a client or customer to determine whether, in accordance with the business purpose and substance principles, BEAT exposure could be reduced.

Contact us

Michael Urse

Partner, International Tax Services, PwC US

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