Overview of the Base Erosion and 

Anti-Abuse Tax: Section 59A

Prepared by the Staff of the Joint Committee on Taxation 

April 2019
Overview of the Base Erosion and 

Anti-Abuse Tax (the “BEAT”)

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 Certain large corporations are subject to an additional tax 

(the BEAT) that is based in part on the extent to which they 

have made deductible payments to related foreign parties.

 The amount of tax is the difference between (1) 10 percent of 

modified taxable income (“MTI”) and (2) regular (pre-credit) 

tax liability reduced by certain credits.

 MTI is generally regular taxable income increased by (1) certain 

payments to related foreign parties and (2) a certain portion of a 

taxpayer’s net operating loss (“NOL”) deduction, if any.

 Starting in 2026, the rate on MTI increases to 12.5 percent 

and regular (pre-credit) tax liability is reduced by generally 

all credits for purposes of the BEAT calculation.
Who Is Subject to the BEAT?

 The BEAT applies to an applicable taxpayer, which is any taxpayer that:

 Is a corporation other than a RIC, a REIT, or an S corporation;

 Has average annual gross receipts of at least $500 million over the three 

preceding taxable years; and

 Has a base erosion percentage for the taxable year of at least three percent 

(two percent for certain banks and securities dealers).

 A taxpayer that is a member of an aggregate group determines its status 

as an applicable taxpayer by reference to the gross receipts and the base 

erosion percentage of the aggregate group. (Prop. Treas. Reg. sec. 1.59A2(c).)

 An aggregate group generally means all members of a controlled group, 

excluding foreign corporations to the extent their income is not subject to 

U.S. tax. (Prop. Treas. Reg. sec. 1.59A-1(b)(1).)

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Base Erosion Payment: Definition

 Taxpayers calculate their BEAT liability (if any) by first determining their base 

erosion payments, which are generally any amounts paid or accrued by a 

taxpayer in taxable years beginning after December 31, 2017, to a related 

foreign party for which a deduction from gross income is allowable, and include:

 Royalty payments;

 Interest payments;

 Payments for services;

 Amounts paid or accrued to a related foreign party in connection with the acquisition of 

property that is depreciable or amortizable; and

 Reinsurance premiums.

 Payments reflected in cost of goods sold are generally treated as reductions in 

gross receipts, rather than as deductions from gross income, so are generally not 

considered base erosion payments.

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Base Erosion Payment: Exceptions

 Certain payments to foreign related parties are not considered base erosion 

payments, including:

 Payments for certain low-margin services to the extent the amount paid reflects the total 

services cost (Prop. Treas. Reg. sec. 1.59A-3(b)(3)(i));

 Qualified derivative payments;

 Payments that are taken into account as effectively connected income by the taxpayer’s 

related foreign party and therefore subject to net-basis U.S. tax (“ECI exception”) (Prop. 

Treas. Reg. sec. 1.59A-3(b)(3)(iii));

 Interest payments on certain securities that the Federal Reserve requires financial 

institutions to hold (Prop. Treas. Reg. sec. 1.59A-3(b)(3)(v)); and

 Any disallowed interest expense in section 163(j)(2) that is carried forward from a 

taxable year beginning before January 1, 2018 (Prop. Treas. Reg. sec. 1.59A3(b)(3)(vii)).

 Note that taxpayers may make base erosion payments yet not be subject to the 

BEAT if they do not meet the criteria for being an applicable taxpayer.

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Base Erosion Payment: Example

 Assume Corporation A, a car manufacturer that is an applicable taxpayer, makes 

the following payments to related foreign parties:

 $400 million in royalty payments for the use of intellectual property held by a related 

foreign party;

 $300 million in payments for automobile parts manufactured by the related foreign party 

and imported by Corporation A; and

 $100 million in interest payments on a loan from a related foreign party as part of that 

related foreign party’s U.S.-based banking operations.

 The royalty payment is generally a base erosion payment.

 The payment for automobile parts is generally not a base erosion payment because 

it is generally reflected in cost of goods sold and is treated as a reduction in gross 

receipts (and not a deduction from gross income). 

 While interest payments are potential base erosion payments, in this example the 

interest payment is excluded as a base erosion payment because it satisfies the ECI 

exception and is included in the U.S. taxable income of the related foreign party.

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Base Erosion Tax Benefit

 Mechanically, base erosion payments enter the calculation of 

BEAT liability as base erosion tax benefits.

 A base erosion tax benefit generally reflects the reduction in 

taxable income arising from a base erosion payment.

 For payments subject to U.S. withholding tax, the base erosion tax 

benefit is scaled down to the extent that the withholding tax rate is 

subject to the general 30-percent rate (which may be reduced by 

treaty) for purposes of computing MTI and the base erosion percentage. 

(Prop. Treas. Reg. secs. 1.59A-3(c)(2) and (3) and 1.59A-4(b)(2)(i).)

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Base Erosion Percentage: General Formula

BBBBBBBB EEEEEE EEEEEE PP PP PP PP =

BB BBBB

TT TT − OO − EE EE

where:

BB BBBB = Base erosion tax benefits

TT TT = Total deductions and any base erosion tax benefits

OO = Deductions allowed under secs. 172, 245A, and 250

EE EE = Payments (except those satisfying the ECI exception) 

that are excluded as base erosion payments

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Base Erosion Percentage: Definition

 A taxpayer’s base erosion percentage for a taxable year is generally the 

percentage equal to the total amount of base erosion tax benefits of the 

taxpayer for that year divided by the sum of (1) the total amount of 

deductions allowable to the taxpayer for that year and (2) any base 

erosion tax benefits not reflected in (1), such as reinsurance premiums.

 The denominator is computed without regard to certain deductions: the deduction for 

net operating losses (sec. 172); the deduction for the foreign-source portion of a 

dividend received from certain foreign corporations (sec. 245A); and the deduction 

for global intangible low-taxed income and foreign-derived intangible income 

(sec. 250). These deductions do not generally reflect payments made by the 

taxpayer.

 The denominator is also generally computed without regard to any payment that is 

excluded as a base erosion payment (which are generally excluded from the 

numerator as well).

 Payments that meet the ECI exception are excluded from the numerator but are 

included in the denominator. (Prop. Treas. Reg. sec. 1.59A-2(e)(3)(ii).)

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Base Erosion Percentage: Example

 Assume a taxpayer pays its employees $80m in salary (all of 

which is deductible) and makes $20m in royalty payments to 

a related foreign party. These are the only payments made 

by the taxpayer.

 The base erosion percentage equals the total base erosion 

tax benefits of $20m divided by the $100m in total 

deductions, or 20 percent.

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General Formula for BEAT

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BEAT Liability = 

(10% × Modified Taxable Income) 

– Adjusted Regular Tax Liability

where:

Modified Taxable Income = 

Regular Taxable Income 

+ Base Erosion Tax Benefits 

+ Base Erosion Percentage of NOL Deduction

Adjusted Regular Tax Liability = 

Regular Tax Liability 

– Certain Credits
BEAT Calculation Part 1:

Modified Taxable Income

 Modified taxable income generally equals regular taxable 

income + any base erosion tax benefits + the base erosion 

percentage of any NOL deduction.

 The base erosion percentage of any particular NOL deduction item 

equals the amount of the NOL deduction multiplied by the base erosion 

percentage computed for the taxable year in which the associated loss 

arose. (Prop. Treas. Reg. sec. 1.59A-4(b)(2)(ii).)

 Note that taxpayers are generally allowed to deduct base erosion tax 

benefits and NOLs when computing regular taxable income, so these 

amounts are effectively added back in computing modified taxable 

income.

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Modified Taxable Income: Example

 Assume a taxpayer has $300m in regular taxable income, 

$90m in base erosion tax benefits, and a $100m NOL 

deduction arising from a year in which its base erosion 

percentage was 10 percent.

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Modified Taxable Income: Example (cont.)

MTI = $300m Regular Taxable Income

+ $90m Base Erosion Tax Benefits

+ $10m 10% × $100m NOL

= $400m

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BEAT Calculation Part 2: Regular Tax Liability 

Reduced by Certain Credits

 A taxpayer’s BEAT liability equals the difference between (1) 10 percent 

of modified taxable income and (2) regular (pre-credit) tax liability 

reduced by certain credits (“adjusted regular tax liability”).

 Adjusted regular tax liability equals regular (pre-credit) tax liability reduced 

(but not below zero) by generally all credits except for the sec. 41 research 

credit and a certain portion of the low-income housing credit, the renewable 

energy production credit, and the energy investment credit.

 Note that the term “adjusted regular tax liability” appears in the preamble to 

the proposed Treasury Regulations but not the statute. 

 Starting in 2026, adjusted regular tax liability equals regular (pre-credit) 

tax liability reduced by generally all credits, including the specific credits 

described above. 

 The reduction of regular (pre-credit) tax liability by credits increases 

potential BEAT liability.

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BEAT Example

 Assume the following facts for a taxpayer that is an 

applicable taxpayer (and not a bank or securities dealer):

 $600m in gross receipts;

 $100m in deductible salary payments to U.S. employees;

 $50m in interest payments to a related foreign party;

 $250m in royalty payments to a related foreign party;

 $2m in foreign tax credits; and

 $3m in research credits.

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BEAT Example: Regular and Modified 

Taxable Income

Regular Taxable Income $600m Gross Receipts

– $100m Salary

– $50m Interest to Related Foreign Party

– $250m Royalties to Related Foreign Party

= $200m Regular Taxable Income

Modified Taxable Income $200m Regular Taxable Income

+ $50m Interest to Related Foreign Party

+ $250m Royalties to Related Foreign Party

= $500m Modified Taxable Income

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BEAT Example: Regular and Adjusted Regular 

Tax Liability (Pre-2026 and Post-2025)

Regular (Pre-Credit) Tax Liability $200m Regular Taxable Income

(All Years) × $21% Corporate Tax Rate

= $42m Regular Tax Liability 

Adj. Reg. Tax Liability (Pre-2026) $42m Regular Tax Liability 

– $2m Foreign Tax Credit

= $40m Adj. Reg. Tax Liability 

Adj. Reg. Tax Liability (Post-2025) $42m Regular Tax Liability

– $2m Foreign Tax Credit

– $3m Research Credit

= $37m Adj. Reg. Tax Liability 

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BEAT Example: BEAT Liability

(Pre-2026 and Post-2025)

BEAT Liability (Pre-2026) $50m $500m × 10% MTI Rate

– $40m Adj. Reg. Tax Liability (Pre-2026) 

= $10m BEAT Liability (Pre-2026)

BEAT Liability (Post-2025) $62.5m $500m × 12.5% MTI Rate

– $37m Adj. Reg. Tax Liability (Post-2025)

= $25.5m BEAT Liability (Post-2025)

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Certain Special Rules

 Certain banks and securities dealers are generally subject to a 

base erosion percentage threshold of two percent and a rate 

on modified taxable income that is one percentage point 

higher than the general rate.

 With respect to payments made to taxpayers that invert after 

November 9, 2017 (or related foreign persons), base erosion 

payments include amounts that constitute a reduction in gross 

receipts (e.g., cost of goods sold).

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Data: Base Erosion Payments

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U.S. 

Multinationals

Foreign-Owned 

Domestic 

Corporations

Overall

Total Base Erosion Payments $ 153,226 $ 251,803 $ 405,028 

Total Number of Corporations 1,451 1,123 2,574

Base Erosion Payments $ 18,862 $ 2,983 $ 21,845 

Number of Corporations 1,040 288 1,328

Base Erosion Payments $ 134,364 $ 248,820 $ 383,183 

Number of Corporations 411 835 1,246

* Below two percent for certain financial institutions

** At or above two percent for certain financial institutions

$500 Million or More in Gross Receipts

Table 1.─Payments to Related Foreign Parties by Taxpayers with

 (2014, millions of dollars)

Corporations with Base Erosion Percentage at or above 3-Percent Threshold**

Corporations with Base Erosion Percentage below 3-Percent Threshold*

All Corporations

Note: The data is purely illustrative and reflects tabulations from tax year 2014 had the BEAT been 

in effect that year. The data does not account for changes in taxpayer behavior.
Data: Select Data Related to the BEAT

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BEAT Tax Related Parameters U.S. 

Multinationals

Foreign-Owned 

Domestic 

Corporations

Overall

NOL Deduction $ 23,646 $ 22,143 $ 45,790 

Foreign Tax Credits $ 48,874 $ 7,678 $ 56,552 

General Business Credits $ 10,071 $ 2,431 $ 12,501 

Median Base Erosion Percentage 7.75% 15.85% 12.85%

% Corporations with Base Erosion 

Percentage between 3% and 8%** 51.82% 21.68% 31.62%

Number of Corporations 411 835 1,246

* Two percent or more for certain financial institutions

** Between two percent and seven percent for certain financial institutions

Note: The data is purely illustrative and reflects tabulations from tax year 2014 had the BEAT been 

in effect that year. The data does not account for changes in taxpayer behavior.

in Gross Receipts and Base Erosion Percentage of Three Percent or More*

(2014, millions of dollars)

Table 2.─BEAT Tax Parameters for Taxpayers with $500 Million or More
Additional Resources

 Joint Committee on Taxation, General Explanation of Public Law 

115-97 (JCS-1-18), December 2018, pp. 399-409. 

 REG–104259–18 (proposed regulations interpreting the base 

erosion and anti-abuse tax). 

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