The US Treasury and IRS issued final regulations effective 17 December 2025, clarifying how qualified derivative payments in securities lending are reported for BEAT under IRC § 59A, affecting corporations with substantial payments to foreign related parties.
The US Treasury Department and the Internal Revenue Service (IRS) issued final regulations in the Federal Register on 18 December 2025, outlining how qualified derivative payments (QDPs) are determined and reported in securities lending transactions for purposes of the base erosion and anti-abuse tax (BEAT) under IRC § 59A, along with related reporting requirements.
The final regulations relate to how qualified derivative payments with respect to securities lending transactions are determined and reported. The final regulations affect corporations with substantial gross receipts that make payments to foreign related parties.
The final regulations are effective starting 17 December 2025.
BEAT of section 59A imposes on each applicable taxpayer a tax equal to the base erosion minimum tax amount for the taxable year, which is the excess of a specified percentage of the modified taxable income of the applicable taxpayer minus the applicable taxpayer’s regular tax liability under section 26(b) of the Code reduced (but not below zero) by certain credits.
The applicable taxpayer determines its modified taxable income by computing its taxable income without regard to any base erosion tax benefit with respect to any base erosion payment or the base erosion percentage of any net operating loss deduction allowed under section 172 of the Code for the taxable year.
Generally, a base erosion payment is any deductible amount paid or accrued by an applicable taxpayer to a foreign person that is a related party of the applicable taxpayer and the base erosion tax benefit is the deduction allowed under Chapter 1 of the Code for the taxable year for the base erosion payment.
QDPs are not treated as base erosion payments if they are properly reported to the IRS.
Earlier, The IRS in a memorandum, clarified that under the BEAT rules, taxpayers can exclude the cost portion of payments made to foreign related parties for services under the IRC Section 59A(d)(5) “services cost method” exception, even if they do not use the specific transfer pricing method detailed in Treasury Regulation §1.482-9(b).
