Proposed regulations provide much anticipated guidance on the base erosion and anti-abuse tax (BEAT) under Code Sec. 59A and related reporting requirements. The regulations are proposed to apply generally to tax years beginning after December 31, 2017, but taxpayers may rely on these proposed regulations until final regulations are published.
Code Sec. 59A was added by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) and imposes a tax on base erosion payments of taxpayers with substantial gross receipts. The tax is equal to the base erosion minimum tax amount for the tax year. The TCJA also added reporting obligations regarding the BEAT for 25-percent foreign-owned corporations subject to Code Sec. 6038A and foreign corporations subject to Code Sec. 6038C.
Proposed BEAT Rules
The proposed regulations generally provide rules for determining whether a taxpayer is an applicable taxpayer on which the BEAT may be imposed and rules for computing the taxpayer’s BEAT liability. In particular, the proposed regulations provide rules:
- for determining whether a taxpayer is an applicable taxpayer on which the BEAT may be imposed ( Proposed Reg. §1.59A-2);
- for determining the amount of base erosion payments (Proposed Reg. § 1.59A-3(b));
- for determining base erosion tax benefits arising from base erosion payments (Proposed Reg. §1.59A-3(c));
- for determining the amount of modified taxable income, which is computed in part by reference to a taxpayer’s base erosion tax benefits and base erosion percentage of any net operating loss deduction (Proposed Reg. §1.59A-4);
- for computing the base erosion minimum tax amount, which is computed by reference to modified taxable income (Proposed Reg. §1.59A-5);
- for applying the proposed regulations to partnerships (Proposed Reg. § 1.59A-7);
- that are specific to banks and registered securities dealers;
- that are specific to insurance companies;
- that disregard certain transactions having a principal purpose of avoiding Code Sec. 59A (anti-abuse rules) (Proposed Reg. § 1.59A-9);
- regarding the general application of the BEAT to consolidated groups (Proposed Reg. § 1.1502-59A);
- addressing limitations on a loss corporation’s items under Code Secs. 382 and 383 in the context of the BEAT (Proposed Reg. § 1.383-1); and
- regarding reporting and record keeping requirements under Code Sec. 6038A.
Proposed Applicability Dates
Consistent with the Code Sec. 59A applicability date, the proposed regulations (other than the proposed reporting requirements for qualified derivatives payments (QDP)) are proposed to apply to tax years beginning after December 31, 2017. However, taxpayers may rely on these proposed regulations for tax years beginning after December 31, 2017, until final regulations are published, provided the taxpayer and all related parties consistently apply the proposed regulations for all those tax years that end before the finalization date.
The proposed reporting requirements for QDPs apply to tax years beginning one year after the final regulations are published. However, the simplified QDP reporting requirements are proposed to apply to tax years beginning after December 31, 2017.
Any provision that is finalized after June 22, 2019, will apply only to tax years ending on or after the date of filing of the proposed regulations in the Federal register.