Treasury and the IRS, on September 1, released final regulations (the Final Regulations) under Section 59A (‘the base erosion and anti-avoidance tax’ or ‘BEAT’). BEAT, which requires certain US corporations to pay a minimum tax associated with, broadly speaking, deductible payments to non-US related parties, was enacted by the 2017 tax reform act. These regulations finalize the previously proposed regulations published in the Federal Register on December 6, 2019 (the 2019 Proposed Regulations). The Final Regulations retain the basic approach and structure of the proposed regulations, with certain revisions.
The Final Regulations cover rules relating to the determination of a taxpayer’s aggregate group for purposes of determining gross receipts and the base erosion percentage; an election to waive deductions for purposes of the BEAT; the application of the BEAT to partnerships; the anti-abuse rule with respect to certain basis step-up transactions; and possible future guidance relating to the qualified derivative payment (QDP) reporting requirements.
The Final Regulations generally apply to tax years beginning on or after the date the regulations are published in the Federal Register. Taxpayers may apply the Final Regulations, in their entirety, for tax years beginning after December 31, 2017 and before their applicability date, provided that, once applied, taxpayers continue to apply the Final Regulations in their entirety for all subsequent tax years. Alternatively, taxpayers may apply only the ‘allowed deductions’ and ‘waiver’ provisions for tax years beginning after December 31, 2017 and before their applicability date, provided that, once applied, taxpayers continue to apply both of these provisions in their entirety for all subsequent taxable years.
The Final Regulations contain 66 pages of preamble language and 37 of regulatory text, including 5 examples. The Final Regulations are effective 60 days after the date of publication in the Federal Register.
A forthcoming PwC Insight will discuss the Final Regulations in more detail.
The Final Regulations provide, among other things, the ability for taxpayers to waive deductions in calculating their base erosion percentage. Taxpayers should review and assess the impact of these provisions. The above-mentioned highlights are not an exhaustive list of the provisions in the Final Regulations. We expect to publish an in-depth Insight in the coming days.