Tax insight

Treasury releases final regulations on qualified derivative payments for BEAT purposes

Insight
5 minute read
December 18, 2025

What happened?

Treasury and the IRS on December 17, 2025, released final regulations addressing how qualified derivative payments (QDPs) are determined for securities lending transactions for purposes of the base erosion and anti-abuse tax (BEAT). The final regulations largely adopt the January 2025 proposed regulations, clarify key definitions, and refine the rules for determining when payments with respect to securities lending transaction are treated as paid to foreign related parties.

Why is it relevant? 

QDPs are certain derivative payments that, if properly reported, generally are excluded from the definition of a base erosion payment for purposes of the BEAT. The final regulations address the following two practical pressure points for taxpayers with securities lending activity: (1) what is in (and out) of the QDP computation for securities lending, and (2) how to determine whether in-scope payments are treated as made to foreign related parties. In particular, the final regulations confirm that mark-to-market (MTM) gains and losses on the securities leg of intercompany securities lending transactions are excluded from the QDP computation and QDP reporting framework. They also are excluded from the securities-lending netting mechanics used to determine base erosion payment amounts.

The final regulations also refine the approach for determining whether substitute payments or other securities-lending amounts (e.g., borrow fees) are treated as paid to foreign related parties, including a required allocation method where specific identification is not feasible.

Actions to consider

Financial institutions and securities dealers with securities lending activity should assess whether their systems can segregate the securities leg from the cash collateral/rebate leg, track substitute payments, borrow fees, and related items consistently, and support either specific identification or the required allocation method for foreign-related-party attribution. Taxpayers also should document their chosen methodology and related controls.