IRS Issues Highly Anticipated Base Erosion Proposal

The Internal Revenue Service on Thursday issued a long-awaited proposal interpreting a section of last year’s tax reform law that seeks to combat tax avoidance through deductible payments made in the U.S. into other tax jurisdictions. The Base Erosion and Anti-Abuse Tax, or BEAT, applies to taxpayers that meet certain gross receipt and cross-border payment thresholds and can effectively act as a minimum tax. These provisions can have implications for both U.S. and foreign-owned banks with international operations and that make cross-border payments.

Among other things, the proposal provides definitions and operational guidance on which taxpayers are subject to the tax; the amount of BEAT payments; and how the tax will be calculated. Of particular importance to affected banks is the exclusion of interest payments on total loss-absorbing capacity debt (TLAC) from the BEAT payment definitions. The almost-200-page proposal contains additional guidance related to certain payments for services that appear to be positive for banks and other taxpayers. ABA is in the process reviewing the proposal and will solicit comments for potential feedback to the IRS. Comments are due 60 days after publication in the Federal Register.


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