March 29, 2019

Who’s Got the B.E.A.T.? Special Treatment for Certain Expenses and Industries

March 29, 2019/ Ruchelman P.L.L.C.

Code §59A imposes tax on U.S. corporations with substantial gross receipts when base erosion payments to related entities significantly reduce regular corporate income tax. The new tax is known as the base erosion and anti-abuse tax (“B.E.A.T.”). In the second of a two-part series, Rusudan Shervashidze and Stanley C. Ruchelman address (i) the coordination of two sets of limitations on deductions when payments are subject to B.E.A.T. and the Code §163(j) limitation on business interest expense deductions, (ii) the computation of modified taxable income in years when an N.O.L. carryover can reduce taxable income, (iii) application of B.E.A.T. to partnerships and their partners, and (iv) the application of the B.E.A.T. to banks and insurance companies.

February 28, 2019

Who’s Got the B.E.A.T.? A Playbook for Determining Applicable Taxpayers and Payments

February 28, 2019/ Ruchelman P.L.L.C.

Code §59A imposes tax on U.S. corporations with substantial gross receipts when base erosion payments to related entities significantly reduce regular corporate income tax. The new tax is known as the base erosion and anti-abuse tax (“B.E.A.T.”). In late December 2019, the I.R.S. proposed regulations that provide guidance for affected taxpayers. The proposed regulations provide a playbook for making required computations including (i) the gross receipts test to determine if the taxpayer meets the $500 million gross receipts requirement, (ii) the base erosion percentage test, (iii) how to apply the tests when a taxpayer is member of an Aggregate Group having members with differing year-ends, (iv) various computations to determine whether a non-cash transaction is considered to be a payment to a related party outside the U.S. or is outside the scope of the B.E.A.T., and (v) other exceptions from the B.E.A.T. In the first of a multi-part series, Rusudan Shervashidze and Stanley C. Ruchelman tell all.

February 28, 2018

B.E.A.T.-ing Base Erosion: U.S. Subjects Large Corporations to Anti-Abuse Tax

February 28, 2018/ Ruchelman P.L.L.C.

Cross-border payments to related parties have been an arrow in the quiver of cross-border tax planners since the time that income tax and global trade first intersected. The new Code §59A introduces the Base Erosion and Anti-Abuse Tax (“B.E.A.T.”) on large corporations that significantly reduce their U.S. tax liability through the use of cross-border payments to related persons. It is structured as another form of the now-repealed corporate Alternative Minimum Tax rather than a disallowance of a deduction in computing regular taxable income. Banks that have significant interest payments and U.S. companies that pay significant royalties for trademarks, copyrights, and know-how are the targets of the tax to the extent full 30% withholding tax is not imposed. Galia Antebi and Sheryl Shah explain how the tax is computed. Is this another step towards a global trade war?