Repeal BEAT Coalition - (Repeal Base Erosion Anti-Abuse Tax Coalition)
BEAT Unfairly Injures Competitive Advantage of Many American Multinational Corporations, Banks, Insurance Companies, and Securities Dealers
Public Law 115-97, Tax Cuts and Jobs Act (TCJA), Section 59A, imposes generally on US multinational corporations, banks, insurance companies, and securities dealers, with $500 or more in gross receipts, a Base Erosion and Anti-Abuse Tax (BEAT) reputedly to curb structuring of transactions with related foreign parties to minimize US taxes. BEAT must be paid in addition to all other taxes, including regular corporate tax, FDII, and GILTI.
BEAT is discriminatory, unfair, and imprudent tax policy because, for tax years beginning in 2018 and ending in 2027, BEAT is structured to deny a percentage of most deductions, NOL carryover, depreciation or amortization, royalties, interest, and other transactions with foreign affiliates, as well as recapturing the total amount claimed on regular corporate tax for all but four of the forty tax credits in the General Business Credit, section 38 of the Code (exceptions are the research, low-income housing, renewable electricity, and energy investment credits).
As BEAT violates the canon of a level playing field by taxing some corporations more than others, thereby eroding the terms of competition for US-based firms in the highly competitive global economy, the simplest and fairest remedy is to repeal BEAT to restore uniform taxation of corporate income under the overall tax regime of TCJA, and retroactively restore any benefits denied by BEAT since it went into effect.
The scheme of BEAT requires comparing tax liability on corporate regular taxable income and "modified taxable income." Regular taxable income remains as defined in Section 26(b). "Modified taxable income" is income after removing "base erosion payments," such as NOL carryover, royalties, interest, management fees, depreciation or amortization of real property, reinsurance premiums, and similar deductions--in effect, all transactions generally for which a deduction is taken except for dividends, cost of goods sold, or other inputs to produce a product or service. Treasury regulations define what is, or is not, a "base erosion payment" or a "base erosion tax benefit" (the tax deduction arising from a payment.)
To calculate BEAT, the law requires corporate taxpayers to compare their regular tax liability calculated at 21 percent of taxable income and allowed credits, with tax liability on "modified taxable income" at a lower rate while denying the full amount of certain Section 38 credits claimed on regular tax. Tax on modified taxable income is at a rate of 5% for tax years beginning in 2018, 10% for 2019 through 2025, and 12.5% through 2027.
The BEAT tax amount, calculated on the difference between tax liability on "modified taxable income" reduced by certain Section 38 credits, and regular tax liability reduced by credits, results in the full amount of credits claimed on regular tax being included in the BEAT tax amount. Even though BEAT is calculated at a lower rate, it is important to note that BEAT is always an addition to regular tax and not a re-computation of regular tax. A "Model for Computation of BEAT" is available from Repeal BEAT Coalition.
Taxing economic activity should enhance the competitiveness of US workers and industry, and not give America's competitors in the global marketplace a competitive advantage by singling out the largest, and often the most efficient, US firms for an additional tax, estimated to cost impacted corporations $150 billion over ten years. Singling out some taxpayers for additional tax, eroding the level playing field, changing the terms of competition by imposing a haircut on allowed deductions and charges, recapturing many tax credits and disrupting the programs they support, creating additional complexity and administrative burden, undermines the competitiveness not only of the impacted firms but of the US economy generally. BEAT is an unwise policy and should be repealed.
We need a single united voice to repeal BEAT! Join the nearly one hundred members, including major trade associations, already supporting the cause.
E-mail us, and we'll forward our lobbying strategy and goals, list of current members, fact sheet stating the case against BEAT, and membership joining form. Questions? Call (703) 587-4566 or Fax (703) 341-6166.