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† HR 1 EAS 
taxable income by reason of clause (i) shall 
be reduced under rules similar to the rules 
under section 163(j)(5)(B) (as in effect be-
fore the date of the enactment of the Tax 
Cuts and Jobs Act). 
‘‘(3) SPECIAL RULES FOR DETERMINING INTER-
EST
FOR
WHICH
DEDUCTION
ALLOWED.—For pur-
poses of applying paragraph (1), in the case of a tax-
payer to which subsection (j) or (n) of section 163 ap-
plies for the taxable year, the reduction in the amount 
of interest for which a deduction is allowed by reason 
of such subsection shall be treated as allocable first to 
interest paid or accrued to persons who are not re-
lated parties with respect to the taxpayer and then to 
such related parties. 
‘‘(4) BASE
EROSION
PERCENTAGE.—For pur-
poses of paragraph (1)(B)— 
‘‘(A) IN GENERAL.—The term ‘base erosion 
percentage’ means, for any taxable year, the per-
centage determined by dividing— 
‘‘(i) the aggregate amount of base ero-
sion tax benefits of the taxpayer for the tax-
able year, by
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† HR 1 EAS 
‘‘(ii) the aggregate amount of the de-
ductions allowable to the taxpayer under 
this chapter for the taxable year. 
‘‘(B) SPECIAL RULES.—The amount under 
subparagraph (A)(ii) shall be determined— 
‘‘(i) by taking into account base ero-
sion tax benefits described in clauses (i) and 
(ii) of paragraph (2)(A), and 
‘‘(ii) by not taking into account any 
deduction allowed under section 172, 245A, 
or 250 for the taxable year. 
‘‘(d) BASE EROSION PAYMENT.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘base erosion pay-
ment’ means any amount paid or accrued by the tax-
payer to a foreign person which is a related party of 
the taxpayer and with respect to which a deduction 
is allowable under this chapter. 
‘‘(2) PURCHASE OF DEPRECIABLE PROPERTY.— 
Such term shall also include any amount paid or ac-
crued by the taxpayer to a foreign person which is a 
related party of the taxpayer in connection with the 
acquisition by the taxpayer from such person of prop-
erty of a character subject to the allowance of depre-
ciation (or amortization in lieu of depreciation).
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† HR 1 EAS 
‘‘(3) CERTAIN PAYMENTS TO EXPATRIATED ENTI-
TIES.— 
‘‘(A) IN GENERAL.—Such term shall also 
include any amount paid or accrued by the tax-
payer with respect to a person described in sub-
paragraph (B) which results in a reduction of 
the gross receipts of the taxpayer. 
‘‘(B) PERSON DESCRIBED.—A person is de-
scribed in this subparagraph if such person is 
a— 
‘‘(i) 
surrogate 
foreign 
corporation 
which is a related party of the taxpayer, 
but only if such person first became a surro-
gate foreign corporation after November 9, 
2017, or 
‘‘(ii) foreign person which is a member 
of the same expanded affiliated group as the 
surrogate foreign corporation. 
‘‘(C) DEFINITIONS.—For purposes of this 
paragraph— 
‘‘(i) SURROGATE
FOREIGN
CORPORA-
TION.—The term ‘surrogate foreign corpora-
tion’ has the meaning given such term by 
section 7874(a)(2) but does not include a
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† HR 1 EAS 
foreign corporation treated as a domestic 
corporation under section 7874(b). 
‘‘(ii) EXPANDED AFFILIATED GROUP.— 
The term ‘expanded affiliated group’ has the 
meaning given such term by section 
7874(c)(1). 
‘‘(4) EXCEPTION FOR CERTAIN AMOUNTS WITH 
RESPECT
TO
SERVICES.—Paragraph (1) shall not 
apply to any amount paid or accrued by a taxpayer 
for services if— 
‘‘(A) such services are services which meet 
the requirements for eligibility for use of the 
services cost method under section 482 (deter-
mined without regard to the requirement that the 
services not contribute significantly to funda-
mental risks of business success or failure), and 
‘‘(B) such amount constitutes the total serv-
ices cost with no markup. 
‘‘(e) APPLICABLE TAXPAYER.—For purposes of this 
section— 
‘‘(1) IN
GENERAL.—The term ‘applicable tax-
payer’ means, with respect to any taxable year, a tax-
payer—
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† HR 1 EAS 
‘‘(A) which is a corporation other than a 
regulated investment company, a real estate in-
vestment trust, or an S corporation, 
‘‘(B) the average annual gross receipts of 
which for the 3-taxable-year period ending with 
the 
preceding 
taxable 
year 
are 
at 
least 
$500,000,000, and 
‘‘(C) the base erosion percentage (as deter-
mined under subsection (c)(4)) of which for the 
taxable year is 4 percent or higher. 
‘‘(2) GROSS RECEIPTS.— 
‘‘(A) SPECIAL
RULE
FOR
FOREIGN
PER-
SONS.—In the case of a foreign person the gross 
receipts of which are taken into account for pur-
poses of paragraph (1)(B), only gross receipts 
which are taken into account in determining in-
come which is effectively connected with the con-
duct of a trade or business within the United 
States shall be taken into account. In the case of 
a taxpayer which is a foreign person, the pre-
ceding sentence shall not apply to the gross re-
ceipts of any United States person which are ag-
gregated with the taxpayer’s gross receipts by 
reason of paragraph (3).
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† HR 1 EAS 
‘‘(B) OTHER RULES MADE APPLICABLE.— 
Rules similar to the rules of subparagraphs (B), 
(C), and (D) of section 448(c)(3) shall apply in 
determining gross receipts for purposes of this 
section. 
‘‘(3) AGGREGATION RULES.—All persons treated 
as a single employer under subsection (a) of section 
52 shall be treated as 1 person for purposes of this 
subsection and subsection (c)(4), except that in apply-
ing section 1563 for purposes of section 52, the excep-
tion 
for 
foreign 
corporations 
under 
section 
1563(b)(2)(C) shall be disregarded. 
‘‘(f) FOREIGN PERSON.—For purposes of this section, 
the term ‘foreign person’ has the meaning given such term 
by section 6038A(c)(3). 
‘‘(g) RELATED PARTY.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘related party’ 
means, with respect to any applicable taxpayer— 
‘‘(A) any 25-percent owner of the taxpayer, 
‘‘(B) any person who is related (within the 
meaning of section 267(b) or 707(b)(1)) to the 
taxpayer or any 25-percent owner of the tax-
payer, and 
‘‘(C) any other person who is related (with-
in the meaning of section 482) to the taxpayer.