BEAT Qualified Derivative Payment Reporting Deferred Until 2025

The IRS has amended the base erosion and anti-abuse tax (BEAT) regulations to defer reporting requirements for qualified derivative payments (QDPs) until the 2025 tax year.

What is BEAT?

In 2017, BEAT was passed to discourage U.S. and foreign corporations from dodging tax liability by shifting profits out of the U.S. It basically works as a 10% minimum tax for certain multinational companies that make “base erosion payments” to foreign related parties. BEAT increases tax liability for U.S. corporations and U.S. branches of non-U.S. corporations, and is sometimes referred to as a new alternative minimum tax.

What Does This Deferral Mean?

Final BEAT regulations include rules that address QDP reporting, which are not treated as base erosion payments for BEAT purposes. In general, a payment qualifies for the QDP exception if the taxpayer satisfies certain reporting requirements, and the aggregate amount of QDPs for the tax year must be reported on Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts. If a taxpayer fails to satisfy these reporting requirements with respect to any payments, those payments are not eligible for the QDP exception and are treated as base erosion payments, unless another exception applies.

The QDP reporting rules apply to tax years beginning on or after June 7, 2021. Before these rules are applicable (the transition period), a taxpayer is treated as satisfying the QDP reporting requirements if they report the aggregate amount of QDPs on Form 8991, Schedule A in good faith. Now, the IRS is extending the transition period through tax years beginning before January 1, 2023, while it studies the interaction of the QDP exception, the BEAT netting rule, and the QDP reporting requirements.

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