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A tax professional's guide to the BEAT in taxation

December 4, 2025

7 min read

Marketing Manager, Content

With the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, the tax landscape saw significant shifts. While most of the attention was on individual and small business taxation, it's important to not overlook international tax. One provision that remains critically important for multinational corporations is the Base Erosion and Anti-Abuse Tax (BEAT). BEAT has undergone important modifications that tax professionals need to understand. Let's break down what BEAT is, how it came to be, what's changed, and what you need to know about compliance.

The Bottom line on BEAT

BEAT remains a critical component of the U.S. international tax regime, imposing real costs on companies with significant cross-border related-party transactions. With the OBBBA's modest rate adjustment to 10.5%, tax professionals now have more certainty for long-term planning compared to the scheduled 12.5% increase that was averted.

Understanding BEAT's mechanics, filing requirements, and strategic implications is essential for serving multinational clients effectively. By maintaining rigorous compliance procedures and staying informed about regulatory developments, tax professionals can help their clients navigate this complex provision while optimizing their overall international tax position.

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What is BEAT in tax?

The Base Erosion and Anti-Abuse Tax (BEAT) is a minimum tax targeting multinational corporations that make significant deductible payments to related foreign affiliates. Think of it as a safeguard against profit shifting—the practice of using cross-border payments to artificially reduce U.S. taxable income.

BEAT applies to large corporations with:

Average annual gross receipts of at least $500 million (measured over a three-year period)
Base erosion percentage of 3% or higher (2% for certain banks and securities dealers)

The tax doesn't apply to individuals, S corporations, regulated investment companies (RICs), or real estate investment trusts (REITs).

How BEAT came to be

Before BEAT, the U.S. had established several mechanisms to patrol Base Erosion and Profit Shifting (BEPS) activity—including foreign tax credit limitations, Subpart F provisions, and Section 956 rules. However, these measures didn't fully address situations where U.S. subsidiaries made deductible payments (like interest, royalties, or service fees) to foreign parents in low-tax jurisdictions.

Here's the concern: these payments reduce the U.S. tax base through deductions, while the corresponding income may not be taxed—or is lightly taxed—in the foreign jurisdiction. The result? An "erosion" of U.S. tax revenue and a "shift" of profits to low-tax countries.

The 2017 Tax Cuts and Jobs Act solution to BEPS

As part of the TCJA's transition to a territorial-style tax system, Congress implemented BEAT under IRC Section 59A, effective for taxable years beginning after December 31, 2017. The provision was designed to work alongside other international tax reforms, including the transition tax, the participation exemption (Section 245A), and the Global Intangible Low-Taxed Income (GILTI) rules.

BEAT correctly identifies payments in categories commonly associated with profit shifting—namely interest, royalties, and payments related to intangible assets, labeling them as "base erosion payments." However, a key limitation of BEAT is that it doesn't consider whether these payments go to high-tax jurisdictions, which would indicate legitimate economic substance rather than tax avoidance.

Updates to BEAT: Tax under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act, signed into law on July 3, 2025, made targeted but important changes to BEAT.

What changed (and what didn't)

The Key Modification:

BEAT rate permanently set at 10.5% for tax years beginning after December 31, 2025
This prevents the previously scheduled increase from 10% to 12.5% that was set to take effect in 2026

What Stayed the Same:

The $500 million gross receipts threshold remains unchanged
The 3% base erosion percentage test (2% for certain financial institutions) continues to apply
The types of credits that can offset BEAT liability remain consistent with prior law
No carryback or carryforward provisions for excess BEAT liability

The evolution that almost happened

During OBBBA negotiations, several more dramatic changes to BEAT were proposed but ultimately discarded:

Section 899's punitive approach

Early House versions would have weaponized BEAT as a retaliatory tool against countries with extraterritorial or discriminatory taxes. This would have increased the BEAT rate to 12.5% for targeted countries, eliminated the receipts threshold, and denied more U.S. tax credits. Fortunately, following G7 negotiations and an agreement on the undertaxed profits rule (UTPR), Section 899 was removed from the final legislation.

The high-tax exemption

An early Senate draft proposed exempting payments to high-tax jurisdictions (those with rates above 90% of the U.S. rate, or 18.9%) from BEAT. This would have better aligned BEAT with its stated purpose of targeting actual base erosion rather than legitimate economic activity. However, revenue concerns and administrative complexity led to this provision being dropped from the final bill.

In summary, any large company that wants to “defeat the BEAT” will have to review their deductible payments tied to related foreign affiliates, determine if certain exceptions apply, and, if not, evaluate whether restructuring is appropriate to minimize amounts added back taxable income for purposes of the BEAT provisions.

Beat methodology and computations

Understanding how BEAT works is essential for compliance. Here's the calculation framework:

Step 1: Determine modified taxable Iincome

Modified taxable income = Regular taxable income + Base erosion tax benefits

Base erosion tax benefits include:

Deductions for amounts paid or accrued to related foreign persons
Depreciation or amortization deductions for property acquired from related foreign persons
Base erosion percentage of any net operating loss (NOL) deductions

Step 2: Calculate the BEAT amount

BEAT amount = BEAT rate × Modified taxable income

BEAT Rate Schedule:

2018: 5% (phase-in year)
2019-2025: 10%
2026 and later: 10.5%(under OBBBA)

Step 3: Determine BEAT liability

BEAT liability = BEAT amount - Regular tax liability (adjusted for certain credits)

If the result is positive, the taxpayer owes additional tax. If zero or negative, no BEAT applies.

Practical example

Let's walk through a scenario:

Facts:

Regular taxable income: $100,000
Regular tax rate: 21%
Regular U.S. tax liability: $21,000
Base erosion payments: $125,000

Calculation

Modified taxable income = $100,000 + $125,000 = $225,000
BEAT amount = 10.5% × $225,000 = $23,625
BEAT liability = $23,625 - $21,000 = $2,625

In this example, the company owes an additional $2,625 in BEAT.

Non-application example

If base erosion payments were only $100,000:

Modified taxable income = $200,000
BEAT amount = 10.5% × $200,000 = $21,000
BEAT liability = $21,000 - $21,000 = $0

Generally, BEAT begins to apply when deductible payments to foreign affiliates exceed taxable income by approximately 10%.

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Filing requirements for BEAT compliance

Form 8991: Your BEAT compliance tool

Tax professionals must use Form 8991 (Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts) to calculate and report BEAT liability. This six-page form consists of four parts and three schedules.

Who needs to file form 8991?

IRC Section 59A(e) requires any corporation (excluding RICs, REITs, and S corporations) with gross receipts of at least $500 million in one or more of the three preceding tax years to file Form 8991 with their income tax return.

Form 8991 Structure

Part I: Applicable Taxpayer Determination: Determines whether the taxpayer meets the gross receipts and base erosion percentage thresholds
Part II: Modified Taxable Income
- Line 3a: Taxable income after NOL
- Line 3b: Base erosion tax benefits (from Schedule A)
- Line 3c: Base erosion percentage of NOL deduction
- Line 3d: Modified taxable income
Part III: Regular Tax Liability Adjusted for Credits
- Line 4a: Regular tax liability
- Line 4b: Allowed credits (from Schedule C)
- Line 4c: Regular tax liability adjusted for BEAT purposes
Part IV: Computation of BEAT Amount
- Line 5a: Modified taxable income
- Line 5b: Applicable BEAT rate (10.5% for 2026+)
- Line 5c: Base erosion minimum tax Line 5d: Regular tax liability
- Line 5e: Final BEAT liability
Schedule A: Details all base erosion payments and tax benefits by type and related party relationship
Schedule B: Documents any waiver of deductions elected by the taxpayer
Schedule C: Lists credits reducing regular tax liability in computing

Strategic Considerations for Tax Professionals

Impact on Foreign Investment

BEAT can significantly impact foreign companies with U.S. operations, particularly those in sectors like technology where U.S. subsidiaries commonly pay licensing fees to foreign parents for intellectual property rights. These payments, while economically legitimate, are added back to taxable income for BEAT purposes.

Policy Tensions

While BEAT serves as a deterrent against base erosion, its mechanics raise concerns:

Disincentive to foreign direct investment: BEAT falls more harshly on foreign companies contemplating investment in the U.S., as they're more likely to have cross-border payments
No consideration of tax rates: Unlike a high-tax exemption would have provided, BEAT doesn't distinguish between payments to high-tax and low-tax jurisdictions
Competitive disadvantage: The provision can put both U.S. and foreign multinationals operating in the U.S. at a competitive disadvantage

Compliance Best Practices

Track related-party payments: Maintain detailed records of all payments to foreign affiliates
Monitor gross receipts: Track three-year rolling average to anticipate BEAT applicability
Calculate base erosion percentage: Regularly assess whether the 3% (or 2%) threshold is approaching
Coordinate with other international provisions: Consider BEAT in conjunction with NCTI (formerly GILTI), FDDEI (formerly FDII), and foreign tax credit planning
Review transfer pricing: Ensure intercompany transactions have economic substance and proper documentation

Looking ahead at BEAT

While OBBBA ultimately made only modest changes to BEAT, the debates surrounding the provision reveal competing visions for international tax policy. Some lawmakers view BEAT as a tool that could be made even harsher to deter practices the U.S. opposes, while others advocate for refinements like a high-tax exemption to better target actual base erosion.

The removal of the high-tax exemption from the final OBBBA package—largely due to revenue and administrative concerns—leaves BEAT as an imperfect but stable measure for the foreseeable future. Tax professionals should continue monitoring potential future reforms, particularly in the context of ongoing international tax negotiations and OECD developments.

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