Treasury issues proposed BEAT rules

Overview

Treasury has released proposed regulations (‘the Proposed Regulations’) for the base erosion and anti-abuse tax (BEAT) under Section 59A. The BEAT rules require certain corporations to pay a minimum tax on payments to non-US related parties. The Proposed Regulations, released on December 13, are the first regulatory guidance under new Section 59A, which was enacted by the 2017 tax reform act (the Act). (For prior coverage on the Act, refer to the ‘See also’ section at the end of this document.)

The Proposed Regulations provide needed guidance related to the mechanics of determining, among other things, the applicable taxpayer status, a taxpayer’s base erosion percentage, and a taxpayer’s modified taxable income (MTI). The Proposed Regulations also address the application of Section 59A to certain partnerships, banks, registered securities dealers, insurance companies, and consolidated groups. The Proposed Regulations reserve on the application of the BEAT to certain expatriated entities. The Proposed Regulations also provide an anti-abuse rule that generally disregards certain transactions undertaken with a principal purpose of avoiding Section 59A.

The Proposed 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 in the Federal Register, provided that the taxpayer and all related parties consistently apply the Proposed Regulations.

On December 19, PwC covered the Proposed Regulations on a “Tax reform readiness” webcast: “We got the BEAT (proposed regulations).”

The takeaway

The Proposed Regulations provide additional 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. The Proposed Regulations also provide an anti-abuse rule that generally disregards certain transactions undertaken with a principal purpose of avoiding Section 59A. The Proposed Regulations reserve on the application of BEAT to certain expatriated entities.

Taxpayers should review and assess the impact of the provisions in the Proposed Regulations, and consider commenting on issues that Treasury should address before publishing final Section 59A guidance.