On 1 September 2020, the Internal Revenue Service issued final regulations providing additional guidance on the base erosion and anti-abuse tax (BEAT).
To limit profit-shifting, the Tax Cuts and Jobs Act (TCJA) added a new tax, the BEAT. The BEAT focuses on large U.S. corporations that make deductible payments to related foreign parties. The BEAT applies only to a taxpayer that is an applicable taxpayer. Generally, a taxpayer determines whether it is an applicable taxpayer based upon its gross receipts and base erosion percentage. When a taxpayer is a member of an aggregate group, the gross receipts test and base erosion percentage test are applied on the basis of its aggregate group. §1.59A-2(c)(1). Generally, a taxpayer and its affiliated corporations are aggregated for purposes of determining gross receipts and the base erosion percentage if they are members of the same controlled group of corporations, as defined in section 1563(a) with certain modifications (including by substituting “more than 50 percent” for “at least 80 percent”).
The final regulations provide detailed guidance regarding how to compute certain BEAT calculations for groups of related taxpayers. The final regulations also contain rules permitting taxpayers to waive deductions for purposes of the BEAT, and additional guidance regarding partnerships and anti-abuse rules.
