US Tax Reform: Base Erosion and Anti-Abuse Tax (”BEAT”)

Under the Tax Cuts and Jobs Act, U.S. corporate shareholders of a foreign business can now deduct any dividends received when computing corporate taxable income. Because this deduction can reduce U.S. tax on foreign profits, Congress created a mechanism to deter U.S. corporations from eroding the U.S. tax base by paying tax-deductible expenses to foreign affiliates then distributing profits tax-free. The deterrent is essentially a new form of an alternative minimum tax that applies to large multinational corporations and was quickly given the acronym ”BEAT.” The BEAT is effective for tax years beginning after December 31, 2017.