![]() ![]() An "extraordinary item" includes items identified as extraordinary items under the consolidated group rules of Treas. The allocation of an "extraordinary item" is based on the date the item is taken into account an extraordinary item attributable to a transaction occurring after (but on the same day as) the event causing the member to join or leave the taxpayer's aggregate group is treated as taken into account at the beginning of the following day. Alternatively, a member's items (except for an "extraordinary item") may be allocated on a pro-rata basis without a closing of the books. The items of a joining (or departing) member taken into account by the taxpayer as part of its aggregate group by reference to the member's deemed year-end are determined by treating the member's books as closing (a deemed closing of the books). This deemed tax year-end must be considered for purposes of applying the with-or-within approach, i.e., testing the gating thresholds by reference to the gross receipts, base erosion tax benefits and deductions of each aggregate group member whose tax year ends "with or within" the taxpayer's tax year. The 2020 final BEAT regulations treat a member that is joining or leaving the group as having a "deemed year-end" at the end of the day of the transaction that causes the corporation to join or leave the aggregate group (to the extent the transaction does not otherwise end the member's tax year). ![]() Solely for purposes of applying the gross-receipts and base-erosion-percentage tests, the taxpayer only takes into account member items that occur when the members were part of the taxpayer's aggregate group. ![]() A change in the taxpayer's ownership (or change in ownership of the taxpayer's aggregate group member) results in member(s) joining or leaving the taxpayer's aggregate group. This rule appeared in the 2019 proposed BEAT regulations and was a change from the 2018 proposed BEAT regulations, which based gross receipts and the base erosion percentage on the taxpayer's aggregate group as of the end of the taxpayer's tax year.Ī change in the taxpayer's ownership does not cause a taxpayer to leave its own aggregate group. Under the 2020 final BEAT regulations, a taxpayer measures the gross-receipts test and base-erosion-percentage test by reference to the gross receipts, base erosion tax benefits and deductions (collectively, "items") of each aggregate group member whose tax year ends "with or within" the taxpayer's tax year (a with-or-within approach). In general, a taxpayer's aggregate group comprises corporations that would be included in the same controlled group of corporations (defined in IRC Section 1563(a)) as the taxpayer, except that a "more than 50%" threshold applies instead of "at least 80%."Ĭhanges in composition of a taxpayer's aggregate group A corporation subject to the BEAT is an "applicable taxpayer." An aggregation rule applies to treat the taxpayer and certain affiliated corporations as one person for purposes of applying the gross-receipts and base-erosion tests to determine whether the taxpayer is an applicable taxpayer. ![]() The BEAT generally applies to a corporation that (i) is subject to US net income tax (ii) has average annual gross receipts of at least US$500 million for the prior three years (the gross-receipts test), and (iii) has a "base erosion percentage" of 3% or more (2% or more for a taxpayer that is a member of an affiliated group with a domestic bank or registered securities dealer) (the base-erosion-percentage test). Rules for determining a taxpayer's aggregate group This Tax Alert discusses the 2020 final BEAT regulations in light of these changes. The 2020 final BEAT regulations also provide generally taxpayer-favorable refinements to the nonrecognition transaction anti-abuse rule introduced by the 2019 final BEAT regulations. 1 More specifically, the 2020 final BEAT regulations generally adopt the aggregate group rules, the election to waive deductions and the partnership rules of the 2019 proposed BEAT regulations. The regulations finalize proposed BEAT regulations that were issued on Decem(2019 proposed BEAT regulations), and revise certain final BEAT regulations issued on the same date (2019 final BEAT regulations). 9910) on the base erosion anti-abuse tax (BEAT) under Internal Revenue Code Section 59A (2020 final BEAT regulations). On September 2, 2020, the Treasury Department and IRS released final regulations ( T.D. Final BEAT regulations adopt proposed BEAT guidance with some changes ![]()
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