Moreover, a brother-sister controlled group exists if (i) five or fewer individuals, estates or trusts own more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, considering only the stock ownership percentage of each shareholder that is identical with respect to each corporation, and (ii) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock of each corporation. Note, the BEAT regulations use 50 percent as opposed to 80 percent, which is included in the statutory language of IRC §1563(a)(1) when determining whether or not a controlled group exists. A parent-subsidiary controlled group exists when a corporation owns 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of at least one other corporation. IRC §1563 specifies that a controlled group includes either a parent-subsidiary controlled group or a brother-sister controlled group. When defining a single employer, IRC §52(a) looks to IRC §1563 and the definition of a controlled group. Section 59A and proposed regulations define the term “aggregate” group whereby all persons treated as a single employer under IRC §52(a) shall be treated as one person for purposes of the aforementioned tests. Conversely, a BEAT-applicable taxpayer actually computes its modified taxable income, to which the BEAT rate is then applied on a standalone basis. taxpayer looks to its controlled or “aggregate” group and considers all component members, both foreign and domestic, in determining whether the gross receipts and base erosion percentage tests are satisfied, thereby subjecting the U.S. taxpayers that are members of a group of corporations related by stock ownership must be aggregated for purposes of applying the gross receipts and base erosion percentage tests described above. The BEAT shall only apply if all of the aforementioned tests are satisfied however, U.S. The taxpayer must have a base erosion percentage of 3 percent or more.The taxpayer must have average annual gross receipts for the three-taxable-year period ending with the preceding taxable year in excess of $500 million.The taxpayer must be taxed as a C corporation therefore, a BEAT-applicable taxpayer is not an S corporation, nor is it a regulated investment company or a real estate investment trust.A BEAT-applicable taxpayer must satisfy each of the following criteria: Proposed Treasury Regulation §1.59A-2 sets forth the guidance needed to make this determination. taxpayer must determine whether it is a BEAT-applicable taxpayer, which could be an onerous task for multinational enterprises with complex organizational structures. The BEAT applies to taxable years beginning after December 31, 2017. While exceptions do exist, deductible payments for interest, royalties and services, among other items, will ordinarily be considered base erosion payments. Rather, a base erosion payment includes amounts paid or accrued by the taxpayer to a related foreign party for which a deduction is allowed. A base erosion payment does not include a reduction to a taxpayer’s gross receipts, i.e., a cost of goods sold item. To the extent the BEAT exceeds the taxpayer’s regular tax liability reduced by certain credits, the excess represents the BEAT liability. The result of this computation is modified taxable income to which the BEAT rate is then applied. In short, a BEAT-applicable taxpayer is required to recalculate taxable income without regard to certain tax deductions for base erosion payments made to foreign related parties. This new base erosion and anti-abuse tax, colloquially known as “BEAT,” involves complex modified tax computations however, what may be even more difficult for many taxpayers is ascertaining whether they are subject to the BEAT. In an effort to reduce interpretive latitude on the part of taxpayers and resolve several unanswered questions, the IRS released a 193-page proposed regulation set on December 13, 2018.
#Gross receipts definition code#
income tax liabilities by making tax-deductible payments to a foreign parent or foreign related parties, Congress enacted Internal Revenue Code (IRC) Section 59A-tax on base erosion payments of taxpayers with substantial gross receipts-in connection with the Tax Cuts and Jobs Act. Inspired in part by congressional concern that foreign-owned U.S.
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