On December 13, 2018, the Treasury Department and the Internal Revenue Service issued highly-anticipated proposed regulations (the “Regulations”) regarding the base erosion and anti-abuse tax (generally referred to as the “BEAT”). The BEAT was introduced as part of the Tax Cuts and Jobs Act of 2017 with the intended purpose of preventing U.S. corporations from unduly reducing their taxable base through payments to related foreign parties. This note analyzes the BEAT and discusses the important clarifications and changes made by the Regulations.
Part I – Taxpayers Subject to the BEAT: Applicable Taxpayers
The BEAT applies only to “applicable taxpayers.” An applicable taxpayer is a corporation (other than a RIC, a REIT or an S corporation) that (together with its “aggregate group,” if applicable) satisfies the gross receipts test and the Base Erosion Percentage test, each as described below.
Aggregation of Taxpayers
For purposes of determining whether a corporation is an applicable taxpayer, corporations are aggregated into an “aggregate group” if they are treated as a single employer under section 52(a), with certain modifications. In general, corporations are aggregated for this purpose if they are related by 50% common ownership.
- The Regulations clarify that a foreign corporation is not treated as part of an aggregate group, except to the extent that the foreign corporation has effectively connected income (“ECI”), in which case the foreign corporation is treated as part of the aggregate group with respect to items that are ECI but is not treated as part of the aggregate group with respect to items that are not ECI. This limitation on the extent to which a foreign corporation is included in the aggregate group is intended to ensure that payments made by a U.S. corporation (or a foreign corporation with respect to its ECI) to a related foreign corporation (but not subject to tax in the hands of the foreign corporation) are not excluded from the Base Erosion Percentage test.
- The Regulations provide that payments between members of the aggregate group are not:
- included in the gross receipts of the aggregate group, or
- taken into account for purposes of the numerator or the denominator in the Base Erosion Percentage calculation.
Gross Receipts Test
A taxpayer satisfies the gross receipts test if the taxpayer (or the aggregate group of which it is a member) has $500 million or more of average annual gross receipts during the three prior taxable years. In the case of a foreign corporation, the gross receipts test only takes into account gross receipts that are taken into account in determining ECI.
Base Erosion Percentage Test
The Base Erosion Percentage test is satisfied with respect to a taxpayer if the taxpayer (or the aggregate group of which the taxpayer is a member) has a “Base Erosion Percentage” of 3% or more. The Base Erosion Percentage threshold is 2% (rather than 3%) if the taxpayer, or a member of the taxpayer’s aggregate group, is a member of an affiliated group that includes a domestic bank or registered securities dealer.
The Base Erosion Percentage for a taxable year is calculated by dividing:
- the aggregate amount of Base Erosion Tax Benefits (the “numerator”) by
- the sum of the aggregate amount of deductions plus certain other Base Erosion Tax Benefits (the “denominator”).
Base Erosion Tax Benefits are generally the deductions or reductions in gross income that result from Base Erosion Payments. A detailed description of the items that are taken into account in calculating the numerator is set forth below in Part II (Base Erosion Payments) and Part III (Base Erosion Tax Benefits).
- The Regulations exclude any losses from section 988 transactions from both the numerator and the denominator in determining the Base Erosion Percentage.
- While it appears reasonable to exclude section 988 losses from the numerator and denominator in the context of transactions with related foreign parties, it is unclear why losses from section 988 transactions with unrelated parties should be excluded from the denominator.
- The denominator of the Base Erosion Percentage excludes:
- any net operating loss (“NOL”) deduction,
- the deduction allowed under sections 245A and 250, and
- certain amounts excluded from treatment as Base Erosion Payments (such as payments eligible for the services costs method, qualified derivative payments and payments pursuant to certain “TLAC” securities (each as described in Part II below)).
- In the case of transactions that are marked to market for tax purposes, the Regulations combine all income, deduction, gain or loss on each transaction for the year to determine the amount of the deduction that is used for purposes of the Base Erosion Percentage test. This rule does not modify the net amount otherwise allowed as a deduction under the mark-to-market regime.
- As a result of this rule, a taxpayer that marks-to-market positions more frequently than annually will take into account for purposes of the Base Erosion Percentage only a single net deduction for any taxable year.
- Further, if a taxpayer recognizes a mark-to-market loss with respect to a security, but took into account any income or gain items with respect to such security during the taxable year, the taxpayer must net all of such items in determining whether it has a deduction with respect to the security for the taxable year.
Part II – Base Erosion Payments
General Definition of Base Erosion Payments
The Regulations define a Base Erosion Payment as a payment or accrual by the taxpayer to a “foreign related party” that is described in one of four categories:
- a payment with respect to which a deduction is allowable,
- a payment made in connection with the acquisition of depreciable or amortizable property,
- premiums or other consideration paid or accrued for reinsurance that is taken into account under section 803(a)(1)(B) or 832(b)(4)(A), or
- a payment resulting in a reduction of the gross receipts of the taxpayer that is with respect to certain surrogate foreign corporations or related foreign persons.
For purposes of the BEAT rules, the term “related party” means:
- any 25% owner of the taxpayer, by vote or value,
- any person who is related, as defined in sections 267(b) or 707(b)(1), to the taxpayer or to a 25% owner of the taxpayer, and
- any person related to the taxpayer under section 482.
- The Regulations clarify that a payment or accrual by a taxpayer to a foreign related party may be a Base Erosion Payment regardless of whether the payment is in cash or in any form of non-cash consideration.
- Interestingly, the preamble to the Regulations (the “Preamble”) asserts that a domestic corporation’s acquisition of depreciable assets from a foreign related party in a transaction described in section 332, 351 or 368 may, notwithstanding the tax-free treatment of the transaction, be treated as a payment (consisting of stock) to the foreign related party and thus may be treated as a Base Erosion Payment. In such a case, Base Erosion Tax Benefits would arise as the domestic corporation depreciates or amortizes the carryover basis in the assets acquired pursuant to the transaction.
- The Preamble also asserts that a base erosion payment includes a transfer of property to a foreign related party resulting in a recognized loss. It is not clear:
- why a recognized economic loss is treated as base eroding for purposes of the BEAT simply because the economic loss is recognized upon a sale of property to a foreign related party, and
- that the statutory and regulatory language supports the Preamble’s position.
- The Regulations also clarify that, except as otherwise permitted, the amount of any Base Erosion Payment is determined on a gross basis, regardless of any contractual or legal right to make or receive payments on a net basis. While not entirely clear, it does not appear that this provision was meant to change the general tax treatment of when payments should be tax accounted for on a gross (rather than net) basis. In determining whether a transferred amount constitutes a Base Erosion Payment, the term “payments” does not include amounts taken into account in determining cost of goods sold (“COGS”). The Regulations do not provide any guidance regarding the COGS exclusion, including by addressing in what circumstances a royalty payment is classified as deductible under section 162 or as a cost includible in inventory resulting in a reduction in gross income. That determination will be made based on existing provisions and general tax principles.
Exceptions From Treatment as Base Erosion Payments
Exception for Amounts Eligible for the Services Cost Method Under Section 482
The term Base Erosion Payment does not include any amount paid or accrued by a taxpayer for services if (A) the services are eligible for the services cost method (“SCM”) under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure) and (B) the amount constitutes the total services cost with no markup component.
- The Regulations clarify that the SCM exception is available even if there is a markup, but that the portion of any payment that exceeds the total cost of services is not eligible for the SCM exception and is a Base Erosion Payment.
Exception for Qualified Derivative Payments
A payment constituting a “qualified derivative payment” or “QDP” is not a Base Erosion Payment. A QDP is defined as any payment made by a taxpayer to a foreign related party pursuant to a derivative if:
- the taxpayer recognizes gain or loss on the derivative on a mark-to-market basis,
- the gain or loss is ordinary,
- any gain, loss, income or deduction on a payment made pursuant to the derivative is also treated as ordinary, and
- the taxpayer satisfies new reporting requirements under section 6038A.
For this purpose, the term “derivative” is defined as any contract, the value of which, or any payment with respect to which, is determined by reference to any stock, evidence of indebtedness, actively traded commodity, currency, or any rate, price, amount, index, formula or algorithm.
- Critically, the Regulations provide that the term derivative does not include any sale-repurchase transaction, securities lending transaction or substantially similar transaction.
- While the exclusion from derivative treatment of the loan component of a sale-repurchase transaction may be sensible, it is difficult to understand why securities lending transactions were excluded from derivative treatment. In particular:
- A securities lending transaction is a derivative in any commonplace understanding of the term, and
- The rationale for excluding QDPs from treatment as Base Erosion Payments should apply with equal force to payments and other items with respect to securities lending transactions, and
- Consider whether, in the case of a securities borrower, the derivative transaction may be treated as a short sale rather than a securities lending transaction (and therefore may still qualify for the QDP exception).
- In the context of a financial institution, it is important to focus on the following practical consequences of excluding securities lending transactions from treatment as derivatives:
- Consider whether substitute payments and securities lending fees (including negative rebate) paid to a related foreign person are Base Erosion Payments (after netting against any income or gain items from such transaction for the same taxable year),
- Consider whether mark-to-market losses from a securities lending transaction with a foreign related party may be treated as Base Erosion Payments (again after netting against any income or gain items from such transaction for the same taxable year), and
- Determining whether securities posted by a foreign related party as collateral for an obligation (such as pursuant to a sale-repurchase transaction) have been loaned to the taxpayer may take on new-found importance.
- The government has specifically requested comments regarding whether it is appropriate to exclude sale-repurchase and securities lending transactions from the definition of derivative, including whether certain of such transactions lack a “significant financing component.”
- Under the Code, the QDP exception does not apply to (i) a payment that would be treated as a Base Erosion Payment if it were not made pursuant to a derivative or (ii) a payment that is properly allocable to the nonderivative component of a derivative that has both derivative and nonderivative components. Even though the scope of these exceptions is arguably unclear, the Regulations provide no guidance regarding how these exceptions should be interpreted. Instead, the Preamble states that the exceptions are “self-executing,” and thus taxpayers must apply the exceptions in determining whether a derivative payment is a QDP.
Exception for Payments the Recipient of Which Treats as ECI
- The Regulations clarify that a payment to a foreign person is not treated as a Base Erosion Payment to the extent that such payment is treated as ECI to the foreign related party (but only if the taxpayer receives a Form W-8ECI with respect to such payment).
- No similar exception is provided for amounts paid to a controlled foreign corporation that are taken into account by a U.S. shareholder as subpart F or GILTI income.
Exception for Exchange Loss From a Section 988 Transaction
- As noted above, the Regulations provide that exchange losses from section 988 transactions are not treated as Base Erosion Payments. This implies that such losses are otherwise within the statutory and regulatory definition of Base Erosion Payments, although such reading is not clear on the face of the language.
Exception for Interest on “TLAC” Securities
The Federal Reserve requires that certain global systemically important banking organizations (“GSIBs”) issue “total loss-absorbing capacity” (“TLAC”) securities. In particular, a domestic intermediate holding company of a foreign GSIB is required to issue a minimum amount of internal TLAC securities to its foreign parent.
- The Regulations provide that interest paid pursuant to TLAC securities does not constitute Base Erosion Payments but only to the extent of the amount of interest paid on TLAC securities that the Federal Reserve requires to be issued.
- Because the Federal Reserve requirement applies only to domestic institutions, however, the TLAC exception does not apply to securities issued by a foreign corporation engaged in a U.S. trade or business. The government has requested comments regarding whether a similar exemption should be available with respect to securities required to be issued by a foreign regulator.
Base Erosion Payments Occurring Before the Effective Date and Pre-2018 Disallowed Business Interest
The BEAT applies only to Base Erosion Payments paid or accrued in taxable years beginning after December 31, 2017.
- The Regulations confirm that deductions allowed in a taxable year beginning after December 31, 2017, are excluded from Base Erosion Payment treatment to the extent relating to payments that occurred in a taxable year beginning before January 1, 2018.
- For example, if a taxpayer accrued interest in 2017 on an obligation to a foreign related party, but the interest was not currently deductible due to the application of section 267(a), and the taxpayer is entitled to a deduction in respect of such interest in 2018, such deduction is not a Base Erosion Payment.
- The Regulations provide that any disallowed disqualified interest under old section 163(j) that resulted from a payment or accrual to a foreign related party and that is carried forward from a taxable year beginning before January 1, 2018, is not a Base Erosion Payment.
- This rule helpfully reverses the position taken by the government in Notice 2018-28.
Special Rules for Determining Base Erosion Payments of a Foreign Corporation With a U.S. Trade or Business
As noted above, a foreign corporation that recognizes ECI and is otherwise considered an applicable taxpayer is subject to the BEAT.
- The Regulations generally provide that a foreign corporation that has interest expense allocable under section 882(c) to income that is ECI will have a Base Erosion Payment to the extent the interest expense results from a payment or accrual to a foreign related party, based on the method used by the foreign corporation under Treas. Reg. § 1.882-5.
- If a foreign corporation uses the method described in Treas. Reg. § 1.882-5(b)-(d), interest on direct allocations and on U.S.-booked liabilities that is paid or accrued to a foreign related party will be a Base Erosion Payment.
- If U.S.-booked liabilities exceed U.S.-connected liabilities, the foreign corporation must apply its scaling ratio to all of its interest expense on a pro-rata basis to determine the amount that is a Base Erosion Payment.
- If U.S.-connected liabilities exceed U.S.-booked liabilities, the interest on such excess U.S.-connected liabilities is treated as a Base Erosion Payment by multiplying such interest by a fraction:
- numerator of which is the foreign corporation’s average worldwide liabilities due to a foreign related party, and
- the denominator of which is the foreign corporation’s average total worldwide liabilities.
- For purposes of this fraction, any liability that is a U.S.-booked liability or is subject to a direct allocation is excluded from both the numerator and the denominator of the fraction.
- The Regulations provide that a foreign corporation’s deductions (other than interest) properly allocated and apportioned to ECI are Base Erosion Payments to the extent that those deductions are paid or accrued to a foreign related party.
- Special rules are provided for foreign corporations that use a treaty-based expense allocation or attribution method. Those rules operate in a manner that is generally less favorable than the rules for foreign corporations that do not use such a treaty-based method.
Part III – Base Erosion Tax Benefits
The amount of an applicable taxpayer’s Base Erosion Tax Benefits is an input in (i) the computation of the Base Erosion Percentage test and (ii) the determination of Modified Taxable Income (discussed in Part V below). A Base Erosion Tax Benefit generally is the amount of any deduction relating to a Base Erosion Payment that is allowed under the Code for the taxable year.
Withholding Tax on Payments
- The Regulations provide that if withholding tax is imposed on a Base Erosion Payment (without reduction under an applicable income tax treaty), the Base Erosion Payment is treated as having a Base Erosion Tax Benefit of zero. If an income tax treaty reduces the amount of withholding imposed on the Base Erosion Payment, the Base Erosion Payment is excluded from Base Erosion Tax Benefit treatment on a proportionate basis based on the amount of withholding tax imposed.
Interaction With the Interest Disallowance Provisions of Section 163(j)
Section 59A(c)(3) sets forth a stacking rule to address cases in which section 163(j) applies to disallow interest deductions of a taxpayer. Under this rule, the reduction in the amount of deductible interest under section 163(j) is treated as allocable first to interest paid or accrued to persons who are not related parties with respect to the taxpayer and then to related parties. This has the effect of maximizing the amount of interest potentially giving rise to Base Erosion Tax Benefits.
- The Regulations provide rules for determining which portion of the interest treated as paid to related parties (and thus potentially treated as a Base Erosion Payment) under the stacking rule is treated as paid to a foreign related person as opposed to a domestic related person. Specifically, the Regulations provide that the amount of allowed business interest expense is treated:
- first, as the business interest expense paid to related parties, proportionately between foreign and domestic related parties, and
- second, as business interest expense paid to unrelated parties.
Part IV – Base Erosion Minimum Tax Amount
An applicable taxpayer’s tax liability under the BEAT for any taxable year is referred to as its base erosion minimum tax amount (“BEMTA”), which equals the excess of (1) the applicable tax rate (the “BEAT tax rate”) multiplied by the taxpayer’s Modified Taxable Income over (2) the taxpayer’s adjusted regular tax liability, each as determined for that taxable year. In computing the taxpayer’s regular tax liability for a taxable year, certain credits (including foreign tax credits) generally are subtracted from the regular tax liability amount.
The BEAT tax rate for a taxable year generally is as follows:
- for taxable years beginning in 2018, 5%
- for taxable years beginning after December 31, 2018, through taxable years beginning before January 1, 2026, 10%, and
- for taxable years beginning after December 31, 2025, 12.5%.
As described in Part VII below, the BEAT tax rate is increased by 1% for a taxpayer that is a member of an affiliated group that includes a bank or registered securities dealer.
- The Regulations clarify that credits for overpayment of taxes and for taxes withheld at source (i.e., taxes creditable pursuant to section 33 and 37) are not subtracted from the taxpayer’s regular tax liability because these credits relate to federal income tax actually paid.
- The Regulations provide that the BEAT is determined at the consolidated group level, rather than determined separately for each member of a consolidated group. Thus, items from intercompany transactions are not taken into account for purposes of making any BEAT calculation or determination.
Part V – Modified Taxable Income
Method of Computation
The Modified Taxable Income of a taxpayer equals the taxpayer’s taxable income for the taxable year, determined without regard to:
- Base Erosion Tax Benefits, and
- the Base Erosion Percentage of any NOL deduction.
- The Regulations clarify that, other than in the case of a consolidated group, the computation of Modified Taxable Income is made on a taxpayer-by-taxpayer basis (and thus the aggregate group concept used for purposes of determining whether a taxpayer is an applicable taxpayer does not apply).
- The Regulations provide that the computation of Modified Taxable Income is done on an “add-back” basis rather than a “recomputation” approach. As a result, Modified Taxable Income is computed by starting with taxable income or loss as computed for regular tax purposes and adding to that amount (i) the gross amount of Base Erosion Tax Benefits for the taxable year and (ii) the Base Erosion Percentage of any NOL deduction. The Preamble states that the government decided against using a recomputation approach (under which the taxpayer’s taxable income would be recomputed as if certain amounts were not taken into account) due to the complexity of such an approach.
Effect of Current Year Losses and Excess NOL Carryovers on Modified Taxable Income
One significant issue arising from the statutory BEAT provision was whether an applicable taxpayer’s taxable income, to be used as the starting point for calculating its Modified Taxable Income could be negative as a result either of a current year net taxable loss or the application of NOL carryovers or carrybacks to the taxable year.
- The Regulations provide that a negative amount can be the starting point for computing Modified Taxable Income when there is no NOL deduction from NOL carryovers and carrybacks.
- The Regulations provide, however, that where there is an NOL deduction from an NOL carryover or carryback to the taxable year and that NOL deduction exceeds the amount of positive taxable income before that deduction, the excess amount of NOL deduction does not reduce taxable income below zero for purposes of determining the starting point for computing Modified Taxable Income.
- The Regulations further clarify that the NOL deduction taken into account for purposes of adding the Base Erosion Percentage of the NOL deduction to taxable income is only the NOL deduction that reduces regular taxable income to zero, rather than a larger NOL carryover where the entire amount of the carryover is not used.
- Finally, the Regulations provide that an applicable taxpayer’s taxable income is determined without regard to the rule in section 860E(a)(1), which provides that a holder of a REMIC residual interest may not have taxable income that is less than its excess inclusion amount. As a result, an applicable taxpayer may have a negative amount of taxable income for purposes of the Modified Taxable Income starting point, even if it is treated as having positive taxable income equal to its excess inclusion amount by virtue of the application of section 860E(a)(1).
Determining the Base Erosion Percentage of NOL Deductions
As noted above, Modified Taxable Income includes the Base Erosion Percentage of any NOL deduction allowed under section 172 for the taxable year (the “NOL Add-back”).
- The Regulations provide that the Base Erosion Percentage to be applied in determining the NOL Add-back is the Base Erosion Percentage determined for the year in which the loss arose (which is referred to as the “vintage year”), rather than the Base Erosion Percentage for the year in which such NOLs are used.
- Consistent with the vintage year approach to the NOL Add-back, the Regulations also provide that in the case of NOLs that arose in taxable years beginning before January 1, 2018, and that are deducted as carryovers in taxable years beginning after December 31, 2017, the Base Erosion Percentage is zero.
- The Regulations also clarify that in computing the NOL Add-back, the relevant Base Erosion Percentage is the Base Erosion Percentage for the aggregate group of which the applicable taxpayer is a member.
Part VI – Application of the BEAT to Partnerships
Only corporations can be “applicable taxpayers.” Thus, a partnership is not an applicable taxpayer.
- The Regulations generally apply an aggregate approach in:
- applying the gross receipts test to determine whether a corporation is an applicable taxpayer, and
- evaluating the treatment of payments made by a partnership or received by a partnership for purposes of the BEAT.
- Thus, the Regulations treat a partnership as an aggregate of its partners in determining whether payments to or from a partnership are Base Erosion Payments. Specifically:
- when determining whether a corporate partner has made a Base Erosion Payment, amounts paid or accrued by a partnership are treated as paid or accrued by such partner to the extent such amounts are properly allocated to the partner, and
- amounts received or accrued by a partnership are treated as received or accrued by a partner for such purpose to the extent such amounts are properly allocated to such partner.
- The Regulations also provide a small interest exception to the aggregate approach for purposes of determining Base Erosion Tax Benefits from a partnership. Under this exception, a partner is not required to take into account its proportionate share of Base Erosion Tax Benefits with respect to a partnership if (after taking into account direct, indirect and constructive ownership):
- such partner’s partnership interest represents at all times during the taxable year less than 10% of the capital and profits of the partnership,
- the partner is allocated less than 10% of each partnership item of income, gain, loss, deduction and credit for the taxable year, and
- such partner’s partnership interest has a fair market value of less than $25 million on the last day of the taxable year.
- Finally, the Regulations clarify that with respect to any person that owns an interest in a partnership, the determination of whether a person is treated as a related party is made at the partner level.
Part VII – Rules Relating to Groups That Include Banks and Registered Securities Dealers
The BEAT statutory provision provides special rules for certain groups that include a bank or registered securities dealer (a “Financial Group”). Specifically:
- the Base Erosion Percentage threshold for entities within a Financial Group is 2% (rather than 3%), and
- the BEAT tax rate is one percentage point higher for members of a Financial Group (i.e., 6% for taxable years beginning in 2018, 11% for taxable years beginning after December 31, 2018, through taxable years beginning before January 1, 2026, and 13.5% for taxable years beginning after December 31, 2025, rather than 5%, 10% and 12.5%, respectively).
- The Regulations confirm that the term “bank” includes only banks and trust companies incorporated and doing business under the laws of United States (i.e., those described in section 581), and thus a foreign corporation conducting a banking business in the United States is not included in the definition of a bank even if its income from such business is ECI.
- The Regulations also confirm that the term “registered securities dealer” is limited to dealers and does not include brokers that are not also dealers.
- For purposes of applying the lower Base Erosion Percentage threshold (2% rather than 3%) to Financial Group members, the Regulations clarify that because the Base Erosion Percentage is determined on an aggregate group basis, the lower threshold applies if any member of the aggregate group is a member of an affiliated group that includes a bank or registered securities dealer, even to a member of the aggregate group that is not a member of such affiliated group (e.g., because the aggregate group member is a foreign corporation).
- The Regulations provide, however, that for purposes of determining the BEAT tax rate to be applied, the higher rate applicable to members of a Financial Group applies only to such group members that are members of an affiliated group that includes a bank or registered securities dealer. Thus, a foreign corporation should not be subject to the 1% higher rate applicable to Financial Group members because it cannot be a member of such an affiliated group.
- The Regulations provide a limited exception from Financial Group treatment for members of an affiliated group that includes a bank or registered securities dealer where the activities of the bank or registered securities dealer are de minimis (i.e., generally where the gross receipts attributable to the bank or the registered securities dealer are less than 2% of the group’s gross revenues).
Part VIII – Anti-Abuse Rules
The TCJA authorized the Secretary to prescribe regulations as may be necessary or appropriate to carry out the provisions of the BEAT, including regulations necessary to prevent the avoidance of the purposes of the BEAT through the use of unrelated persons, conduit transactions or other intermediaries.
- The Regulations provide three specific anti-avoidance rules that may alter the BEAT consequences of certain transactions that have a “principal purpose” of avoiding the BEAT:
- in the case of transactions involving intermediaries acting as a conduit to avoid the treatment of a payment as a Base Erosion Payment, the role of the intermediary may be disregarded or the payment to the intermediary may be treated as a Base Erosion Payment,
- transactions entered into to increase the deductions taken into account in the denominator of the Base Erosion Percentage are disregarded for purposes of the Base Erosion Percentage calculation, and
- transactions among related parties entered into to avoid the application of rules applicable to banks and registered securities dealers (such as transactions to disaffiliate a bank or securities dealer) are disregarded.
- Importantly, the Regulations do not provide a general anti-avoidance rule to address other types of transactions that may be designed to avoid or minimize the impact of the BEAT.
Part IX – Effective Date
The Regulations (other than the reporting requirements for QDPs under section 6038A) are proposed to apply to taxable years beginning after December 31, 2017. Until finalization, a taxpayer may rely on the Regulations for taxable years beginning after December 31, 2017, provided the taxpayer consistently applies the Regulations for all taxable years ending before the finalization date.