§59A — Tax on base erosion payments of taxpayers with substantial gross receipts
1 citing cases
Statute Text — 26 U.S.C. §59A
There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle.
For purposes of this section—
Except as provided in paragraph (2), the term “base erosion minimum tax amount” means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of—
an amount equal to 10.5 percent (5 percent in the case of taxable years beginning in calendar year 2018) of the modified taxable income of such taxpayer for the taxable year, over
an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of—
the credits allowed under this chapter against such regular tax liability, over
the sum of—
the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a), plus
the portion of the applicable section 38 credits not in excess of 80 percent of the lesser of the amount of such credits or the base erosion minimum tax amount (determined without regard to this subclause).
In the case of a taxpayer described in subparagraph (B) who is an applicable taxpayer for any taxable year, the percentages otherwise in effect under paragraph (1)(A) shall be increased by one percentage point.
A taxpayer is described in this subparagraph if such taxpayer is a member of an affiliated group (as defined in section 1504(a)(1)) which includes—
a bank (as defined in section 581), or
a securities dealer registered under section 15(a) of the Securities Exchange Act of 1934.
For purposes of paragraph (1)(B)(ii)(II), the term “applicable section 38 credits” means the credit allowed under section 38 for the taxable year which is properly allocable to—
the low-income housing credit determined under section 42(a),
the renewable electricity production credit determined under section 45(a), and
the investment credit determined under section 46, but only to the extent properly allocable to the energy credit determined under section 48.
For purposes of this section—
The term “modified taxable income” means the taxable income of the taxpayer computed under this chapter for the taxable year, determined without regard to—
any base erosion tax benefit with respect to any base erosion payment, or
the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year.
The term “base erosion tax benefit” means—
any deduction described in subsection (d)(1) which is allowed under this chapter for the taxable year with respect to any base erosion payment,
in the case of a base erosion payment described in subsection (d)(2), any deduction allowed under this chapter for the taxable year for depreciation (or amortization in lieu of depreciation) with respect to the property acquired with such payment,
in the case of a base erosion payment described in subsection (d)(3)—
any reduction under section 803(a)(1)(B) in the gross amount of premiums and other consideration on insurance and annuity contracts for premiums and other consideration arising out of indemnity insurance, and
any deduction under section 832(b)(4)(A) from the amount of gross premiums written on insurance contracts during the taxable year for premiums paid for reinsurance, and
in the case of a base erosion payment described in subsection (d)(4), any reduction in gross receipts with respect to such payment in computing gross income of the taxpayer for the taxable year for purposes of this chapter.
Except as provided in clause (ii), any base erosion tax benefit attributable to any base erosion payment—
on which tax is imposed by section 871 or 881, and
with respect to which tax has been deducted and withheld under section 1441 or 1442,
The amount not taken into account in computing modified taxable income by reason of clause (i) shall be reduced under rules similar to the rules under section 163(j)(5)(B) (as in effect before the date of the enactment of the Tax Cuts and Jobs Act).
shall not be taken into account in computing modified taxable income under paragraph (1)(A) or the base erosion percentage under paragraph (4).
For purposes of applying paragraph (1), in the case of a taxpayer to which section 163(j) applies for the taxable year, the reduction in the amount of interest for which a deduction is allowed by reason of such subsection shall be treated as allocable first to interest paid or accrued to persons who are not related parties with respect to the taxpayer and then to such related parties.
For purposes of paragraph (1)(B)—
The term “base erosion percentage” means, for any taxable year, the percentage determined by dividing—
the aggregate amount of base erosion tax benefits of the taxpayer for the taxable year, by
the sum of—
the aggregate amount of the deductions (including deductions described in clauses (i) and (ii) of paragraph (2)(A)) allowable to the taxpayer under this chapter for the taxable year, plus
the base erosion tax benefits described in clauses (iii) and (iv) of paragraph (2)(A) allowable to the taxpayer for the taxable year.
The amount under subparagraph (A)(ii) shall be determined by not taking into account—
any deduction allowed under section 172, 245A, or 250 for the taxable year,
any deduction for amounts paid or accrued for services to which the exception under subsection (d)(5) applies, and
any deduction for qualified derivative payments which are not treated as a base erosion payment by reason of subsection (h).
For purposes of this section—
The term “base erosion payment” means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter.
Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with the acquisition by the taxpayer from such person of property of a character subject to the allowance for depreciation (or amortization in lieu of depreciation).
Such term shall also include any premium or other consideration paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer for any reinsurance payments which are taken into account under sections 803(a)(1)(B) or 832(b)(4)(A).
Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer.
A person is described in this subparagraph if such person is a—
surrogate foreign corporation which is a related party of the taxpayer, but only if such person first became a surrogate foreign corporation after
November 9, 2017
, or
foreign person which is a member of the same expanded affiliated group as the surrogate foreign corporation.
For purposes of this paragraph—
The term “surrogate foreign corporation” has the meaning given such term by section 7874(a)(2)(B) but does not include a foreign corporation treated as a domestic corporation under section 7874(b).
The term “expanded affiliated group” has the meaning given such term by section 7874(c)(1).
Paragraph (1) shall not apply to any amount paid or accrued by a taxpayer for services if—
such services are services which meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure), and
such amount constitutes the total services cost with no markup component.
For purposes of this section—
The term “applicable taxpayer” means, with respect to any taxable year, a taxpayer—
which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation,
the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and
the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 3 percent (2 percent in the case of a taxpayer described in subsection (b)(2)(B)) or higher.
In the case of a foreign person the gross receipts of which are taken into account for purposes of paragraph (1)(B), only gross receipts which are taken into account in determining income which is effectively connected with the conduct of a trade or business within the United States shall be taken into account. In the case of a taxpayer which is a foreign person, the preceding sentence shall not apply to the gross receipts of any United States person which are aggregated with the taxpayer’s gross receipts by reason of paragraph (3).
Rules similar to the rules of subparagraphs (B), (C), and (D) of section 448(c)(3) shall apply in determining gross receipts for purposes of this section.
All persons treated as a single employer under subsection (a) of section 52 shall be treated as 1 person for purposes of this subsection and subsection (c)(4), except that in applying section 1563 for purposes of section 52, the exception for foreign corporations under section 1563(b)(2)(C) shall be disregarded.
For purposes of this section, the term “foreign person” has the meaning given such term by section 6038A(c)(3).
For purposes of this section—
The term “related party” means, with respect to any applicable taxpayer—
any 25-percent owner of the taxpayer,
any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer, and
any other person who is related (within the meaning of section 482) to the taxpayer.
The term “25-percent owner” means, with respect to any corporation, any person who owns at least 25 percent of—
the total voting power of all classes of stock of a corporation entitled to vote, or
the total value of all classes of stock of such corporation.
Section 318 shall apply for purposes of paragraphs (1) and (2), except that—
“10 percent” shall be substituted for “50 percent” in section 318(a)(2)(C), and
subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.
For purposes of this section—
Except as provided in paragraph (3), any qualified derivative payment shall not be treated as a base erosion payment.
The term “qualified derivative payment” means any payment made by a taxpayer pursuant to a derivative with respect to which the taxpayer—
recognizes gain or loss as if such derivative were sold for its fair market value on the last business day of the taxable year (and such additional times as required by this title or the taxpayer’s method of accounting),
treats any gain or loss so recognized as ordinary, and
treats the character of all items of income, deduction, gain, or loss with respect to a payment pursuant to the derivative as ordinary.
No payments shall be treated as qualified derivative payments under subparagraph (A) for any taxable year unless the taxpayer includes in the information required to be reported under section 6038A(b)(2) with respect to such taxable year such information as is necessary to identify the payments to be so treated and such other information as the Secretary determines necessary to carry out the provisions of this subsection.
This subsection shall not apply to any qualified derivative payment if—
the payment would be treated as a base erosion payment if it were not made pursuant to a derivative, including any interest, royalty, or service payment, or
in the case of a contract which has derivative and nonderivative components, the payment is properly allocable to the nonderivative component.
For purposes of this subsection—
The term “derivative” means any contract (including any option, forward contract, futures contract, short position, swap, or similar contract) the value of which, or any payment or other transfer with respect to which, is (directly or indirectly) determined by reference to one or more of the following:
Any share of stock in a corporation.
Any evidence of indebtedness.
Any commodity which is actively traded.
Any currency.
Any rate, price, amount, index, formula, or algorithm.
Such term shall not include any item described in clauses (i) through (v).
Except as otherwise provided by the Secretary, for purposes of this part, American depository receipts (and similar instruments) with respect to shares of stock in foreign corporations shall be treated as shares of stock in such foreign corporations.
Such term shall not include any insurance, annuity, or endowment contract issued by an insurance company to which subchapter L applies (or issued by any foreign corporation to which such subchapter would apply if such foreign corporation were a domestic corporation).
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations—
providing for such adjustments to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including through—
the use of unrelated persons, conduit transactions, or other intermediaries, or
transactions or arrangements designed, in whole or in part—
to characterize payments otherwise subject to this section as payments not subject to this section, or
to substitute payments not subject to this section for payments otherwise subject to this section and
for the application of subsection (h), including rules to prevent the avoidance of the exceptions under subsection (h)(3).
Treasury Regulations
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Treas. Reg. §1.59A-0Table of contents
This section contains a listing of the headings for §§ 1.59A-1, 1.59A-2, 1.59A-3, 1.59A-4, 1.59A-5, 1.59A-6, 1.59A-7, 1.59A-8, 1.59A-9, and 1.59A-10.
(a) Purpose.
(b) Definitions.
(1) Aggregate group.
(2) Applicable section 38 credits.
(3) Applicable taxpayer.
(4) Bank.
(5) Base erosion and anti-abuse tax rate.
(6) Business interest expense.
(7) Deduction.
(8) Disallowed business interest expense carryforward.
(9) Domestic related business interest expense.
(10) Foreign person.
(11) Foreign related business interest expense.
(12) Foreign related party.
(13) Gross receipts.
(14) Member of an aggregate group.
(15) Registered securities dealer.
(16) Regular tax liability.
(17) Related party.
(i) In general.
(ii) 25-percent owner.
(iii) Application of section 318.
(18) TLAC long-term debt required amount.
(19) TLAC securities amount.
(20) TLAC security.
(21) Unrelated business interest expense.
(a) Scope.
(b) Applicable taxpayer.
(c) Aggregation rules.
(1) In general.
(2) Aggregate group determined with respect to each taxpayer.
(i) In general.
(ii) Change in the composition of an aggregate group.
(3) Taxable year of members of an aggregate group.
(4) Periods before and after a corporation is a member of an aggregate group.
(i) In general.
(ii) Deemed taxable year-end.
(iii) Items allocable to deemed taxable years before and after deemed taxable year-end.
(5) Short taxable year.
(i) Short period of the taxpayer.
(A) In general.
(B) Determining the gross receipts and base erosion percentage of the aggregate group of a taxpayer for a short period.
(ii) Short period of a member of the taxpayer's aggregate group.
(A) Multiple taxable years of a member of the taxpayer's aggregate group comprised of more than 12 months.
(B) Short period or periods of a member of the taxpayer's aggregate group comprised of fewer than 12 months from change in taxable year.
(iii) Anti-abuse rule.
(6) Treatment of predecessors.
(i) In general.
(ii) No duplication.
(7) Partnerships.
(8) Transition rule for aggregate group members with different taxable years.
(9) Consolidated groups.
(d) Gross receipts test.
(1) Amount of gross receipts.
(2) Taxpayer not in existence for entire three-year period.
(3) Gross receipts of foreign corporations.
(4) Gross receipts of an insurance company.
(5) Reductions in gross receipts.
(e) Base erosion percentage test.
(1) In general.
(2) Base erosion percentage test for banks and registered securities dealers.
(i) In general.
(ii) Aggregate groups.
(iii) De minimis exception for banking and registered securities dealer activities.
(3) Computation of base erosion percentage.
(i) In general.
(ii) Certain items not taken into account in denominator.
(iii) Effect of treaties on base erosion percentage determination.
(iv) Amounts paid or accrued between members of a consolidated group.
(v) Deductions and base erosion tax benefits from partnerships.
(vi) Mark-to-market positions.
(vii) Reinsurance losses incurred and claims payments.
(viii) Certain payments that qualify for the effectively connected income exception and another base erosion payment exception.
(f) Examples.
(1) Example 1: Mark-to-market.
(i) Facts.
(ii) Analysis.
(2) Example 2: Member leaving an aggregate group.
(i) Facts.
(ii) Analysis.
(a) Scope.
(b) Base erosion payments.
(1) In general.
(2) Operating rules.
(i) In general.
(ii) Amounts paid or accrued in cash and other consideration.
(iii) Transactions providing for net payments.
(iv) Amounts paid or accrued with respect to mark-to-market position.
(v) Coordination among categories of base erosion payments.
(vi) Certain domestic passthrough entities.
(A) In general.
(B) Amount of base erosion payment.
(C) Specified domestic passthrough.
(D) Specified foreign related party.
(vii) Transfers of property to related taxpayers.
(viii) Reductions to determine gross income.
(ix) Losses recognized on the sale or transfer of property.
(3) Exceptions to base erosion payment.
(i) Certain services cost method amounts.
(A) In general.
(B) Eligibility for the services cost method exception.
(C) Adequate books and records.
(D) Total services cost.
(ii) Qualified derivative payments.
(iii) Effectively connected income.
(A) In general.
(B) Application to certain treaty residents.
(C) Application to partnerships.
(iv) Exchange loss on a section 988 transaction.
(v) Amounts paid or accrued with respect to TLAC securities and foreign TLAC securities.
(A) In general.
(B) Limitation on exclusion for TLAC securities.
(C) Scaling ratio.
(D) Average domestic TLAC securities amount.
(E) Average TLAC long-term debt required amount.
(F) Limitation on exclusion for foreign TLAC securities.
(1) In general.
(2) Foreign TLAC long-term debt required amount.
(3) No specified minimum provided by local law.
(4) Foreign TLAC security.
(vi) Amounts paid or accrued in taxable years beginning before January 1, 2018.
(vii) Business interest carried forward from taxable years beginning before January 1, 2018.
(viii) Specified nonrecognition transactions.
(A) In general.
(B) Other property transferred to a foreign related party in a specified nonrecognition transaction.
(C) Other property received from a foreign related party in certain specified nonrecognition transactions.
(D) Definition of other property.
(E) Allocation of other property.
(ix) Reinsurance losses incurred and claims payments.
(A) In general.
(B) Regulated foreign insurance company.
(4) Rules for determining the amount of certain base erosion payments.
(i) Interest expense allocable to a foreign corporation's effectively connected income.
(A) Methods described in § 1.882-5.
(B) U.S.-booked liabilities determination.
(C) U.S.-booked liabilities in excess of U.S.-connected liabilities.
(D) Election to use financial statements.
(E) Coordination with certain tax treaties.
(1) In general.
(2) Hypothetical § 1.882-5 interest expense defined.
(3) Consistency requirement.
(F) Coordination with exception for foreign TLAC securities.
(ii) Other deductions allowed with respect to effectively connected income.
(iii) Depreciable property.
(iv) Coordination with ECI exception.
(v) Coordination with certain tax treaties.
(A) Allocable expenses.
(B) Internal dealings under certain income tax treaties.
(vi) Business interest expense arising in taxable years beginning after December 31, 2017.
(c) Base erosion tax benefit.
(1) In general.
(2) Exception to base erosion tax benefit.
(i) In general.
(ii) Branch-level interest tax.
(3) Effect of treaty on base erosion tax benefit.
(4) Application of section 163(j) to base erosion payments.
(i) Classification of payments or accruals of business interest expense based on the payee.
(A) Classification of payments or accruals of business interest expense of a corporation.
(B) Classification of payments or accruals of business interest expense by a partnership.
(C) Classification of payments or accruals of business interest expense paid or accrued to a foreign related party that is subject to an exception.
(1) ECI exception.
(2) TLAC interest and interest subject to withholding tax.
(ii) Ordering rules for business interest expense that is limited under section 163(j)(1) to determine which classifications of business interest expense are deducted and which classifications of business interest expense are carried forward.
(A) In general.
(B) Ordering rules for treating business interest expense deduction and disallowed business interest expense carryforwards as foreign related business interest expense, domestic related business interest expense, and unrelated business interest expense.
(1) General ordering rule for allocating business interest expense deduction between classifications.
(2) Ordering of business interest expense incurred by a corporation.
(3) Ordering of business interest expense incurred by a partnership and allocated to a corporate partner.
(5) Allowed deduction.
(6) Election to waive allowed deductions.
(i) In general.
(ii) Time and manner for election to waive deduction.
(A) In general.
(B) Information required to make the election to waive allowed deductions.
(iii) Effect of election to waive deduction.
(A) In general.
(1) Consistent treatment.
(2) No allocation and apportionment of waived deductions.
(3) Effect of waiver of deductions described in §§ 1.861-10 and 1.861-10T.
(4) Effect of the election to waive deductions on the stock basis of a consolidated group member.
(B) Effect of the election to waive deductions disregarded for certain purposes.
(C) Not a method of accounting.
(D) Effect of the election in determining section 481(a) adjustments.
(iv) Rules applicable to partners and partnerships.
(A) In general.
(B) Rule for determining the adjusted basis of a partner's interest in a partnership.
(C) Rule for applying section 163(j).
(D) Limited application of election to waive deductions with respect to adjustments made pursuant to audit procedures under sections 6221 through 6241.
(v) Rule applicable to premium and other consideration paid or accrued by the taxpayer for any reinsurance payments that are taken into account under section 803(a)(1)(B) or 832(b)(4)(A).
(d) Examples.
(1) Example 1: Determining a base erosion payment.
(i) Facts.
(ii) Analysis.
(2) Example 2: Interest allocable under § 1.882-5.
(i) Facts.
(ii) Analysis.
(3) Example 3: Interaction with section 163(j).
(i) Facts.
(ii) Analysis.
(A) Classification of business interest.
(B) Ordering rules for disallowed business interest expense carryforward.
(4) Example 4: Interaction with section 163(j); carryforward.
(i) Facts.
(ii) Analysis.
(A) Classification of business interest.
(B) Ordering rules for disallowed business interest expense carryforward.
(5) Example 5: Interaction with section 163(j); carryforward.
(i) Facts.
(ii) Analysis.
(6) Example 6: Interaction with section 163(j); partnership.
(i) Facts.
(ii) Partnership level analysis.
(iii) Partner level allocations analysis.
(iv) Partner level allocations for determining base erosion tax benefits.
(v) Computation of modified taxable income.
(7) Example 7: Transfers of property to related taxpayers.
(i) Facts.
(ii) Analysis.
(A) Year 1.
(B) Year 2.
(8) Example 8: Effect of election to waive deduction on method of accounting.
(i) Facts.
(ii) Analysis.
(9) Example 9: Change of accounting method when taxpayer has waived a deduction.
(i) Facts.
(ii) Analysis.
(A) Computation of the section 481(a) adjustment.
(B) Computation of basis adjustments.
(a) Scope.
(b) Computation of modified taxable income.
(1) In general.
(2) Modifications to taxable income.
(i) Base erosion tax benefits.
(ii) Certain net operating loss deductions.
(3) Rule for holders of a residual interest in a REMIC.
(c) Examples.
(1) Example 1: Current year loss.
(i) Facts.
(ii) Analysis.
(2) Example 2: Net operating loss deduction.
(i) Facts.
(ii) Analysis.
(a) Scope.
(b) Base erosion minimum tax amount.
(1) In general.
(2) Calculation of base erosion minimum tax amount.
(3) Credits that do not reduce regular tax liability.
(i) Taxable years beginning on or before December 31, 2025.
(ii) Taxable years beginning after December 31, 2025.
(c) Base erosion and anti-abuse tax rate.
(1) In general.
(i) Calendar year 2018.
(ii) Calendar years 2019 through 2025.
(iii) Calendar years after 2025.
(2) Increased rate for banks and registered securities dealers.
(i) In general.
(ii) De minimis exception to increased rate for banks and registered securities dealers.
(3) Application of section 15 to tax rates in section 59A.
(i) New tax.
(ii) Change in tax rate pursuant to section 59A(b)(1)(A).
(iii) Change in rate pursuant to section 59A(b)(2).
(a) Scope.
(b) Qualified derivative payment.
(1) In general.
(2) Reporting requirements.
(i) In general.
(ii) Failure to satisfy the reporting requirement.
(iii) Reporting of aggregate amount of qualified derivative payments.
(iv) Transition period for qualified derivative payment reporting.
(3) Amount of any qualified derivative payment.
(i) In general.
(ii) Net qualified derivative payment that includes a payment that is a base erosion payment.
(c) Exceptions for payments otherwise treated as base erosion payments.
(d) Derivative defined.
(1) In general.
(2) Exceptions.
(i) Direct interest.
(ii) Insurance contracts.
(iii) Securities lending and sale-repurchase transactions.
(A) Multi-step transactions treated as financing.
(B) Special rule for payments associated with the cash collateral provided in a securities lending transaction or substantially similar transaction.
(C) Anti-abuse exception for certain transactions that are the economic equivalent of substantially unsecured cash borrowing.
(3) American depository receipts.
(e) Examples.
(1) Example 1: Notional principal contract as QDP.
(i) Facts.
(ii) Analysis.
(2) Example 2: Securities lending anti-abuse rule.
(i) Facts.
(ii) Analysis.
(a) Scope.
(b) Application of section 59A to partnerships.
(c) Base erosion payment.
(1) Payments made by or to a partnership.
(2) Transfers of certain property.
(3) Transfers of a partnership interest.
(i) In general.
(ii) Transfers of a partnership interest by a partner.
(iii) Certain issuances of a partnership interest by a partnership.
(iv) Partnership interest transfers defined.
(4) Increased basis from a distribution.
(5) Operating rules applicable to base erosion payments.
(i) Single payment characterized as separate transactions.
(ii) Ordering rule with respect to transfers of a partnership interest.
(iii) Consideration for base erosion payment or property resulting in base erosion tax benefits.
(iv) Non-cash consideration.
(v) Allocations of income in lieu of deductions.
(d) Base erosion tax benefit for partners.
(1) In general.
(2) Exception for base erosion tax benefits of certain small partners.
(i) In general.
(ii) Attribution.
(e) Other rules for applying section 59A to partnerships.
(1) Partner's distributive share.
(2) Gross receipts.
(i) In general.
(ii) Foreign corporation.
(3) Registered securities dealers.
(4) Application of sections 163(j) and 59A(c)(3) to partners.
(5) Tiered partnerships.
(f) Foreign related party.
(g) Examples.
(1) Facts.
(2) Examples.
(i) Example 1: Contributions to a partnership on partnership formation.
(A) Facts.
(B) Analysis.
(ii) Example 2: Section 704(c) and remedial allocations.
(A) Facts.
(B) Analysis.
(iii) Example 3: Sale of a partnership interest without a section 754 election.
(A) Facts.
(B) Analysis.
(iv) Example 4: Sale of a partnership interest with section 754 election.
(A) Facts.
(B) Analysis.
(v) Example 5: Purchase of depreciable property from a partnership.
(A) Facts.
(B) Analysis.
(vi) Example 6: Sale of a partnership interest to a second partnership.
(A) Facts.
(B) Analysis.
(vii) Example 7: Distribution of cash by a partnership to a foreign related party.
(A) Facts.
(B) Analysis.
(viii) Example 8: Distribution of property by a partnership to a taxpayer.
(A) Facts.
(B) Analysis.
(ix) Example 9: Distribution of property by a partnership in liquidation of a foreign related party's interest.
(A) Facts.
(B) Analysis.
(x) Example 10: Section 704(c) and curative allocations.
(A) Facts.
(B) Analysis.
(a) Scope.
(b) Anti-abuse rules.
(1) Transactions involving unrelated persons, conduits, or intermediaries.
(2) Transactions to increase the amount of deductions taken into account in the denominator of the base erosion percentage computation.
(3) Transactions to avoid the application of rules applicable to banks and registered securities dealers.
(4) Nonrecognition transactions.
(5) Transactions involving derivatives on a partnership interest.
(6) Allocations to eliminate or reduce a base erosion payment.
(c) Examples.
(1) Facts.
(2) Example 1: Substitution of payments that are not base erosion payments for payments that otherwise would be base erosion payments through a conduit or intermediary.
(i) Facts.
(ii) Analysis.
(3) Example 2: Alternative transaction to base erosion payment.
(i) Facts.
(ii) Analysis.
(4) Example 3: Alternative financing source.
(i) Facts.
(ii) Analysis.
(5) Example 4: Alternative financing source that is a conduit.
(i) Facts.
(ii) Analysis.
(6) Example 5: Intermediary acquisition.
(i) Facts.
(ii) Analysis.
(7) Example 6: Offsetting transactions to increase the amount of deductions taken into account in the denominator of the base erosion percentage computation.
(i) Facts.
(ii) Analysis.
(8) Example 7: Ordinary course transactions that increase the amount of deductions taken into account in the denominator of the base erosion percentage computation.
(i) Facts.
(ii) Analysis.
(9) Example 8: Transactions to avoid the application of rules applicable to banks and registered securities dealers.
(i) Facts.
(ii) Analysis.
(10) Example 9: Transactions that do not avoid the application of rules applicable to banks and registered securities dealers.
(i) Facts.
(ii) Analysis.
(11) Example 10: Acquisition of depreciable property in a nonrecognition transaction.
(i) Facts.
(ii) Analysis.
(12) Example 11: Transactions between related parties with a principal purpose of increasing the adjusted basis of property.
(i) Facts.
(ii) Analysis.
(a) General applicability date.
(b) Exception.
This section contains a listing of the headings for §§ 1.59A-1, 1.59A-2, 1.59A-3, 1.59A-4, 1.59A-5, 1.59A-6, 1.59A-7, 1.59A-8, 1.59A-9, and 1.59A-10.
(a) Purpose.
(b) Definitions.
(1) Aggregate group.
(2) Applicable section 38 credits.
(3) Applicable taxpayer.
(4) Bank.
(5) Base erosion and anti-abuse tax rate.
(6) Business interest expense.
(7) Deduction.
(8) Disallowed business interest expense carryforward.
(9) Domestic related business interest expense.
(10) Foreign person.
(11) Foreign related business interest expense.
(12) Foreign related party.
(13) Gross receipts.
(14) Member of an aggregate group.
(15) Registered securities dealer.
(16) Regular tax liability.
(17) Related party.
(i) In general.
(ii) 25-percent owner.
(iii) Application of section 318.
(18) TLAC long-term debt required amount.
(19) TLAC securities amount.
(20) TLAC security.
(21) Unrelated business interest expense.
(a) Scope.
(b) Applicable taxpayer.
(c) Aggregation rules.
(1) In general.
(2) Aggregate group determined with respect to each taxpayer.
(i) In general.
(ii) Change in the composition of an aggregate group.
(3) Taxable year of members of an aggregate group.
(4) Periods before and after a corporation is a member of an aggregate group.
(i) In general.
(ii) Deemed taxable year-end.
(iii) Items allocable to deemed taxable years before and after deemed taxable year-end.
(5) Short taxable year.
(i) Short period of the taxpayer.
(A) In general.
(B) Determining the gross receipts and base erosion percentage of the aggregate group of a taxpayer for a short period.
(ii) Short period of a member of the taxpayer's aggregate group.
(A) Multiple taxable years of a member of the taxpayer's aggregate group comprised of more than 12 months.
(B) Short period or periods of a member of the taxpayer's aggregate group comprised of fewer than 12 months from change in taxable year.
(iii) Anti-abuse rule.
(6) Treatment of predecessors.
(i) In general.
(ii) No duplication.
(7) Partnerships.
(8) Transition rule for aggregate group members with different taxable years.
(9) Consolidated groups.
(d) Gross receipts test.
(1) Amount of gross receipts.
(2) Taxpayer not in existence for entire three-year period.
(3) Gross receipts of foreign corporations.
(4) Gross receipts of an insurance company.
(5) Reductions in gross receipts.
(e) Base erosion percentage test.
(1) In general.
(2) Base erosion percentage test for banks and registered securities dealers.
(i) In general.
(ii) Aggregate groups.
(iii) De minimis exception for banking and registered securities dealer activities.
(3) Computation of base erosion percentage.
(i) In general.
(ii) Certain items not taken into account in denominator.
(iii) Effect of treaties on base erosion percentage determination.
(iv) Amounts paid or accrued between members of a consolidated group.
(v) Deductions and base erosion tax benefits from partnerships.
(vi) Mark-to-market positions.
(vii) Reinsurance losses incurred and claims payments.
(viii) Certain payments that qualify for the effectively connected income exception and another base erosion payment exception.
(f) Examples.
(1) Example 1: Mark-to-market.
(i) Facts.
(ii) Analysis.
(2) Example 2: Member leaving an aggregate group.
(i) Facts.
(ii) Analysis.
(a) Scope.
(b) Base erosion payments.
(1) In general.
(2) Operating rules.
(i) In general.
(ii) Amounts paid or accrued in cash and other consideration.
(iii) Transactions providing for net payments.
(iv) Amounts paid or accrued with respect to mark-to-market position.
(v) Coordination among categories of base erosion payments.
(vi) Certain domestic passthrough entities.
(A) In general.
(B) Amount of base erosion payment.
(C) Specified domestic passthrough.
(D) Specified foreign related party.
(vii) Transfers of property to related taxpayers.
(viii) Reductions to determine gross income.
(ix) Losses recognized on the sale or transfer of property.
(3) Exceptions to base erosion payment.
(i) Certain services cost method amounts.
(A) In general.
(B) Eligibility for the services cost method exception.
(C) Adequate books and records.
(D) Total services cost.
(ii) Qualified derivative payments.
(iii) Effectively connected income.
(A) In general.
(B) Application to certain treaty residents.
(C) Application to partnerships.
(iv) Exchange loss on a section 988 transaction.
(v) Amounts paid or accrued with respect to TLAC securities and foreign TLAC securities.
(A) In general.
(B) Limitation on exclusion for TLAC securities.
(C) Scaling ratio.
(D) Average domestic TLAC securities amount.
(E) Average TLAC long-term debt required amount.
(F) Limitation on exclusion for foreign TLAC securities.
(1) In general.
(2) Foreign TLAC long-term debt required amount.
(3) No specified minimum provided by local law.
(4) Foreign TLAC security.
(vi) Amounts paid or accrued in taxable years beginning before January 1, 2018.
(vii) Business interest carried forward from taxable years beginning before January 1, 2018.
(viii) Specified nonrecognition transactions.
(A) In general.
(B) Other property transferred to a foreign related party in a specified nonrecognition transaction.
(C) Other property received from a foreign related party in certain specified nonrecognition transactions.
(D) Definition of other property.
(E) Allocation of other property.
(ix) Reinsurance losses incurred and claims payments.
(A) In general.
(B) Regulated foreign insurance company.
(4) Rules for determining the amount of certain base erosion payments.
(i) Interest expense allocable to a foreign corporation's effectively connected income.
(A) Methods described in § 1.882-5.
(B) U.S.-booked liabilities determination.
(C) U.S.-booked liabilities in excess of U.S.-connected liabilities.
(D) Election to use financial statements.
(E) Coordination with certain tax treaties.
(1) In general.
(2) Hypothetical § 1.882-5 interest expense defined.
(3) Consistency requirement.
(F) Coordination with exception for foreign TLAC securities.
(ii) Other deductions allowed with respect to effectively connected income.
(iii) Depreciable property.
(iv) Coordination with ECI exception.
(v) Coordination with certain tax treaties.
(A) Allocable expenses.
(B) Internal dealings under certain income tax treaties.
(vi) Business interest expense arising in taxable years beginning after December 31, 2017.
(c) Base erosion tax benefit.
(1) In general.
(2) Exception to base erosion tax benefit.
(i) In general.
(ii) Branch-level interest tax.
(3) Effect of treaty on base erosion tax benefit.
(4) Application of section 163(j) to base erosion payments.
(i) Classification of payments or accruals of business interest expense based on the payee.
(A) Classification of payments or accruals of business interest expense of a corporation.
(B) Classification of payments or accruals of business interest expense by a partnership.
(C) Classification of payments or accruals of business interest expense paid or accrued to a foreign related party that is subject to an exception.
(1) ECI exception.
(2) TLAC interest and interest subject to withholding tax.
(ii) Ordering rules for business interest expense that is limited under section 163(j)(1) to determine which classifications of business interest expense are deducted and which classifications of business interest expense are carried forward.
(A) In general.
(B) Ordering rules for treating business interest expense deduction and disallowed business interest expense carryforwards as foreign related business interest expense, domestic related business interest expense, and unrelated business interest expense.
(1) General ordering rule for allocating business interest expense deduction between classifications.
(2) Ordering of business interest expense incurred by a corporation.
(3) Ordering of business interest expense incurred by a partnership and allocated to a corporate partner.
(5) Allowed deduction.
(6) Election to waive allowed deductions.
(i) In general.
(ii) Time and manner for election to waive deduction.
(A) In general.
(B) Information required to make the election to waive allowed deductions.
(iii) Effect of election to waive deduction.
(A) In general.
(1) Consistent treatment.
(2) No allocation and apportionment of waived deductions.
(3) Effect of waiver of deductions described in §§ 1.861-10 and 1.861-10T.
(4) Effect of the election to waive deductions on the stock basis of a consolidated group member.
(B) Effect of the election to waive deductions disregarded for certain purposes.
(C) Not a method of accounting.
(D) Effect of the election in determining section 481(a) adjustments.
(iv) Rules applicable to partners and partnerships.
(A) In general.
(B) Rule for determining the adjusted basis of a partner's interest in a partnership.
(C) Rule for applying section 163(j).
(D) Limited application of election to waive deductions with respect to adjustments made pursuant to audit procedures under sections 6221 through 6241.
(v) Rule applicable to premium and other consideration paid or accrued by the taxpayer for any reinsurance payments that are taken into account under section 803(a)(1)(B) or 832(b)(4)(A).
(d) Examples.
(1) Example 1: Determining a base erosion payment.
(i) Facts.
(ii) Analysis.
(2) Example 2: Interest allocable under § 1.882-5.
(i) Facts.
(ii) Analysis.
(3) Example 3: Interaction with section 163(j).
(i) Facts.
(ii) Analysis.
(A) Classification of business interest.
(B) Ordering rules for disallowed business interest expense carryforward.
(4) Example 4: Interaction with section 163(j); carryforward.
(i) Facts.
(ii) Analysis.
(A) Classification of business interest.
(B) Ordering rules for disallowed business interest expense carryforward.
(5) Example 5: Interaction with section 163(j); carryforward.
(i) Facts.
(ii) Analysis.
(6) Example 6: Interaction with section 163(j); partnership.
(i) Facts.
(ii) Partnership level analysis.
(iii) Partner level allocations analysis.
(iv) Partner level allocations for determining base erosion tax benefits.
(v) Computation of modified taxable income.
(7) Example 7: Transfers of property to related taxpayers.
(i) Facts.
(ii) Analysis.
(A) Year 1.
(B) Year 2.
(8) Example 8: Effect of election to waive deduction on method of accounting.
(i) Facts.
(ii) Analysis.
(9) Example 9: Change of accounting method when taxpayer has waived a deduction.
(i) Facts.
(ii) Analysis.
(A) Computation of the section 481(a) adjustment.
(B) Computation of basis adjustments.
(a) Scope.
(b) Computation of modified taxable income.
(1) In general.
(2) Modifications to taxable income.
(i) Base erosion tax benefits.
(ii) Certain net operating loss deductions.
(3) Rule for holders of a residual interest in a REMIC.
(c) Examples.
(1) Example 1: Current year loss.
(i) Facts.
(ii) Analysis.
(2) Example 2: Net operating loss deduction.
(i) Facts.
(ii) Analysis.
(a) Scope.
(b) Base erosion minimum tax amount.
(1) In general.
(2) Calculation of base erosion minimum tax amount.
(3) Credits that do not reduce regular tax liability.
(i) Taxable years beginning on or before December 31, 2025.
(ii) Taxable years beginning after December 31, 2025.
(c) Base erosion and anti-abuse tax rate.
(1) In general.
(i) Calendar year 2018.
(ii) Calendar years 2019 through 2025.
(iii) Calendar years after 2025.
(2) Increased rate for banks and registered securities dealers.
(i) In general.
(ii) De minimis exception to increased rate for banks and registered securities dealers.
(3) Application of section 15 to tax rates in section 59A.
(i) New tax.
(ii) Change in tax rate pursuant to section 59A(b)(1)(A).
(iii) Change in rate pursuant to section 59A(b)(2).
(a) Scope.
(b) Qualified derivative payment.
(1) In general.
(2) Reporting requirements.
(i) In general.
(ii) Failure to satisfy the reporting requirement.
(iii) Reporting of aggregate amount of qualified derivative payments.
(iv) Transition period for qualified derivative payment reporting.
(3) Amount of any qualified derivative payment.
(i) In general.
(ii) Net qualified derivative payment that includes a payment that is a base erosion payment.
(c) Exceptions for payments otherwise treated as base erosion payments.
(d) Derivative defined.
(1) In general.
(2) Exceptions.
(i) Direct interest.
(ii) Insurance contracts.
(iii) Securities lending and sale-repurchase transactions.
(A) Multi-step transactions treated as financing.
(B) Special rule for payments associated with the cash collateral provided in a securities lending transaction or substantially similar transaction.
(C) Anti-abuse exception for certain transactions that are the economic equivalent of substantially unsecured cash borrowing.
(3) American depository receipts.
(e) Examples.
(1) Example 1: Notional principal contract as QDP.
(i) Facts.
(ii) Analysis.
(2) Example 2: Securities lending anti-abuse rule.
(i) Facts.
(ii) Analysis.
(a) Scope.
(b) Application of section 59A to partnerships.
(c) Base erosion payment.
(1) Payments made by or to a partnership.
(2) Transfers of certain property.
(3) Transfers of a partnership interest.
(i) In general.
(ii) Transfers of a partnership interest by a partner.
(iii) Certain issuances of a partnership interest by a partnership.
(iv) Partnership interest transfers defined.
(4) Increased basis from a distribution.
(5) Operating rules applicable to base erosion payments.
(i) Single payment characterized as separate transactions.
(ii) Ordering rule with respect to transfers of a partnership interest.
(iii) Consideration for base erosion payment or property resulting in base erosion tax benefits.
(iv) Non-cash consideration.
(v) Allocations of income in lieu of deductions.
(d) Base erosion tax benefit for partners.
(1) In general.
(2) Exception for base erosion tax benefits of certain small partners.
(i) In general.
(ii) Attribution.
(e) Other rules for applying section 59A to partnerships.
(1) Partner's distributive share.
(2) Gross receipts.
(i) In general.
(ii) Foreign corporation.
(3) Registered securities dealers.
(4) Application of sections 163(j) and 59A(c)(3) to partners.
(5) Tiered partnerships.
(f) Foreign related party.
(g) Examples.
(1) Facts.
(2) Examples.
(i) Example 1: Contributions to a partnership on partnership formation.
(A) Facts.
(B) Analysis.
(ii) Example 2: Section 704(c) and remedial allocations.
(A) Facts.
(B) Analysis.
(iii) Example 3: Sale of a partnership interest without a section 754 election.
(A) Facts.
(B) Analysis.
(iv) Example 4: Sale of a partnership interest with section 754 election.
(A) Facts.
(B) Analysis.
(v) Example 5: Purchase of depreciable property from a partnership.
(A) Facts.
(B) Analysis.
(vi) Example 6: Sale of a partnership interest to a second partnership.
(A) Facts.
(B) Analysis.
(vii) Example 7: Distribution of cash by a partnership to a foreign related party.
(A) Facts.
(B) Analysis.
(viii) Example 8: Distribution of property by a partnership to a taxpayer.
(A) Facts.
(B) Analysis.
(ix) Example 9: Distribution of property by a partnership in liquidation of a foreign related party's interest.
(A) Facts.
(B) Analysis.
(x) Example 10: Section 704(c) and curative allocations.
(A) Facts.
(B) Analysis.
(a) Scope.
(b) Anti-abuse rules.
(1) Transactions involving unrelated persons, conduits, or intermediaries.
(2) Transactions to increase the amount of deductions taken into account in the denominator of the base erosion percentage computation.
(3) Transactions to avoid the application of rules applicable to banks and registered securities dealers.
(4) Nonrecognition transactions.
(5) Transactions involving derivatives on a partnership interest.
(6) Allocations to eliminate or reduce a base erosion payment.
(c) Examples.
(1) Facts.
(2) Example 1: Substitution of payments that are not base erosion payments for payments that otherwise would be base erosion payments through a conduit or intermediary.
(i) Facts.
(ii) Analysis.
(3) Example 2: Alternative transaction to base erosion payment.
(i) Facts.
(ii) Analysis.
(4) Example 3: Alternative financing source.
(i) Facts.
(ii) Analysis.
(5) Example 4: Alternative financing source that is a conduit.
(i) Facts.
(ii) Analysis.
(6) Example 5: Intermediary acquisition.
(i) Facts.
(ii) Analysis.
(7) Example 6: Offsetting transactions to increase the amount of deductions taken into account in the denominator of the base erosion percentage computation.
(i) Facts.
(ii) Analysis.
(8) Example 7: Ordinary course transactions that increase the amount of deductions taken into account in the denominator of the base erosion percentage computation.
(i) Facts.
(ii) Analysis.
(9) Example 8: Transactions to avoid the application of rules applicable to banks and registered securities dealers.
(i) Facts.
(ii) Analysis.
(10) Example 9: Transactions that do not avoid the application of rules applicable to banks and registered securities dealers.
(i) Facts.
(ii) Analysis.
(11) Example 10: Acquisition of depreciable property in a nonrecognition transaction.
(i) Facts.
(ii) Analysis.
(12) Example 11: Transactions between related parties with a principal purpose of increasing the adjusted basis of property.
(i) Facts.
(ii) Analysis.
(a) General applicability date.
(b) Exception.
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Treas. Reg. §1.59A-0(a)General applicability date.
General applicability date.
-
Treas. Reg. §1.59A-0(b)Exception.
Exception.
-
Treas. Reg. §1.59A-0(c)Examples.
Examples.
(1) Facts.
(2) Example 1: Substitution of payments that are not base erosion payments for payments that otherwise would be base erosion payments through a conduit or intermediary.
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Treas. Reg. §1.59A-0(d)Base erosion tax benefit for partners.
Base erosion tax benefit for partners.
(1) In general.
(2) Exception for base erosion tax benefits of certain small partners.
-
Treas. Reg. §1.59A-0(e)Other rules for applying section 59A to partnerships.
Other rules for applying section 59A to partnerships.
(1) Partner's distributive share.
(2) Gross receipts.
-
Treas. Reg. §1.59A-0(f)Foreign related party.
Foreign related party.
-
Treas. Reg. §1.59A-0(g)Examples.
Examples.
(1) Facts.
(2) Examples.
-
Treas. Reg. §1.59A-0(i)Facts.
Facts.
(ii) Analysis.
-
Treas. Reg. §1.59A-0(v)Example 5: Purchase of depreciable property from a partnership.
Example 5: Purchase of depreciable property from a partnership.
(A) Facts.
(B) Analysis.
(vi) Example 6: Sale of a partnership interest to a second partnership.
(A) Facts.
(B) Analysis.
(vii) Example 7: Distribution of cash by a partnership to a foreign related party.
(A) Facts.
(B) Analysis.
(viii) Example 8: Distribution of property by a partnership to a taxpayer.
(A) Facts.
(B) Analysis.
(ix) Example 9: Distribution of property by a partnership in liquidation of a foreign related party's interest.
(A) Facts.
(B) Analysis.
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Treas. Reg. §1.59A-0(x)Example 10: Section 704(c) and curative allocations.
Example 10: Section 704(c) and curative allocations.
(A) Facts.
(B) Analysis.
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Treas. Reg. §1.59A-1Base erosion and anti-abuse tax
(a) Purpose. This section and §§ 1.59A-2 through 1.59A-10 (collectively, the “section 59A regulations”) provide rules under section 59A to determine the amount of the base erosion and anti-abuse tax. Paragraph (b) of this section provides definitions applicable to the section 59A regulations. Section 1.59A-2 provides rules regarding how to determine whether a taxpayer is an applicable taxpayer. Section 1.59A-3 provides rules regarding base erosion payments and base erosion tax benefits. Section 1.59A-4 provides rules for calculating modified taxable income. Section 1.59A-5 provides rules for calculating the base erosion minimum tax amount. Section 1.59A-6 provides rules relating to qualified derivative payments. Section 1.59A-7 provides rules regarding the application of section 59A to partnerships. Section 1.59A-8 is reserved for rules regarding the application of section 59A to certain expatriated entities. Section 1.59A-9 provides anti-abuse rules to prevent avoidance of section 59A. Finally, § 1.59A-10 provides the applicability date for the section 59A regulations.
(b) Definitions. For purposes of this section and §§ 1.59A-2 through 1.59A-10, the following terms have the meanings provided in this paragraph (b).
(1) Aggregate group. The term aggregate group means the group of corporations determined by—
(i) Identifying a controlled group of corporations as defined in section 1563(a), except that the phrase “more than 50 percent” is substituted for “at least 80 percent” each place it appears in section 1563(a)(1) and the determination is made without regard to sections 1563(a)(4) and (e)(3)(C), and
(ii) Once the controlled group of corporations is determined, excluding foreign corporations except with regard to income that is, or is treated as, effectively connected with the conduct of a trade or business in the United States under an applicable provision of the Internal Revenue Code or regulations published under 26 CFR chapter I. Notwithstanding the foregoing, if a foreign corporation is subject to tax on a net basis pursuant to an applicable income tax treaty of the United States, it is excluded from the controlled group of corporations except with regard to income taken into account in determining its net taxable income.
(2) Applicable section 38 credits. The term applicable section 38 credits means the credits allowed under section 38 for the taxable year that are properly allocable to—
(i) The low-income housing credit determined under section 42(a),
(ii) The renewable electricity production credit determined under section 45(a), and
(iii) The investment credit determined under section 46, but only to the extent properly allocable to the energy credit determined under section 48.
(3) Applicable taxpayer. The term applicable taxpayer means a taxpayer that meets the requirements set forth in § 1.59A-2(b).
(4) Bank. The term bank has the meaning provided in section 581.
(5) Base erosion and anti-abuse tax rate. The term base erosion and anti-abuse tax rate means the percentage that the taxpayer applies to its modified taxable income for the taxable year to calculate its base erosion minimum tax amount. See § 1.59A-5(c) for the base erosion and anti-abuse tax rate applicable for the relevant taxable year.
(6) Business interest expense. The term business interest expense, with respect to a taxpayer and a taxable year, has the meaning provided in § 1.163(j)-1(b)(3).
(7) Deduction. The term deduction means any deduction allowable under chapter 1 of subtitle A of the Internal Revenue Code.
(8) Disallowed business interest expense carryforward. The term disallowed business interest expense carryforward has the meaning provided in § 1.163(j)-1(b)(11).
(9) Domestic related business interest expense. The term domestic related business interest expense for any taxable year is the taxpayer's business interest expense paid or accrued to a related party that is not a foreign related party.
(10) Foreign person. The term foreign person means any person who is not a United States person. For purposes of the preceding sentence, a United States person has the meaning provided in section 7701(a)(30), except that any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States is not a United States person. See § 1.59A-7(b) for rules applicable to partnerships.
(11) Foreign related business interest expense. The term foreign related business interest expense for any taxable year is the taxpayer's business interest expense paid or accrued to a foreign related party.
(12) Foreign related party. The term foreign related party means a foreign person, as defined in paragraph (b)(10) of this section, that is a related party, as defined in paragraph (b)(17) of this section, with respect to the taxpayer. In addition, for purposes of § 1.59A-3(b)(4)(v)(B) (relating to internal dealings under certain income tax treaties), a foreign related party also includes the foreign corporation's home office or a foreign branch of the foreign corporation. See § 1.59A-7(b), (c), and (f) for rules applicable to partnerships.
(13) Gross receipts. The term gross receipts has the meaning provided in § 1.448-1T(f)(2)(iv).
(14) Member of an aggregate group. The term member of an aggregate group means a corporation that is included in an aggregate group, as defined in paragraph (b)(1) of this section.
(15) Registered securities dealer. The term registered securities dealer means any dealer as defined in section 3(a)(5) of the Securities Exchange Act of 1934 that is registered, or required to be registered, under section 15 of the Securities Exchange Act of 1934.
(16) Regular tax liability. The term regular tax liability has the meaning provided in section 26(b).
(17) Related party—(i) In general. A related party, with respect to an applicable taxpayer, is—
(A) Any 25-percent owner of the taxpayer;
(B) Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer; or
(C) A controlled taxpayer within the meaning of § 1.482-1(i)(5) together with, or with respect to, the taxpayer.
(ii) 25-percent owner. With respect to any corporation, a 25-percent owner means any person who owns at least 25 percent of—
(A) The total voting power of all classes of stock of the corporation entitled to vote; or
(B) The total value of all classes of stock of the corporation.
(iii) Application of section 318. Section 318 applies for purposes of paragraphs (b)(17)(i) and (ii) of this section, except that—
(A) “10 percent” is substituted for “50 percent” in section 318(a)(2)(C); and
(B) Section 318(a)(3)(A) through (C) are not applied so as to consider a United States person as owning stock that is owned by a person who is not a United States person.
(18) TLAC long-term debt required amount. The term TLAC long-term debt required amount means the specified minimum amount of debt that is required pursuant to 12 CFR 252.162(a).
(19) TLAC securities amount. The term TLAC securities amount is the sum of the adjusted issue prices (as determined for purposes of § 1.1275-1(b)) of all TLAC securities issued and outstanding by the taxpayer, without regard to whether interest thereunder would be a base erosion payment absent § 1.59A-3(b)(3)(v).
(20) TLAC security. The term TLAC security means an eligible internal debt security, as defined in 12 CFR 252.161.
(21) Unrelated business interest expense. The term unrelated business interest expense for any taxable year is the taxpayer's business interest expense paid or accrued to a party that is not a related party.
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Treas. Reg. §1.59A-1(a)Purpose.
Purpose. This section and §§ 1.59A-2 through 1.59A-10 (collectively, the “section 59A regulations”) provide rules under section 59A to determine the amount of the base erosion and anti-abuse tax. Paragraph (b) of this section provides definitions applicable to the section 59A regulations. Section 1.59A-2 provides rules regarding how to determine whether a taxpayer is an applicable taxpayer. Section 1.59A-3 provides rules regarding base erosion payments and base erosion tax benefits. Section 1.59A-4 provides rules for calculating modified taxable income. Section 1.59A-5 provides rules for calculating the base erosion minimum tax amount. Section 1.59A-6 provides rules relating to qualified derivative payments. Section 1.59A-7 provides rules regarding the application of section 59A to partnerships. Section 1.59A-8 is reserved for rules regarding the application of section 59A to certain expatriated entities. Section 1.59A-9 provides anti-abuse rules to prevent avoidance of section 59A. Finally, § 1.59A-10 provides the applicability date for the section 59A regulations.
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Treas. Reg. §1.59A-1(b)Definitions.
Definitions. For purposes of this section and §§ 1.59A-2 through 1.59A-10, the following terms have the meanings provided in this paragraph (b).
(1) Aggregate group. The term aggregate group means the group of corporations determined by—
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Treas. Reg. §1.59A-1(i)§1.59A-1(i)
The low-income housing credit determined under section 42(a),
(ii) The renewable electricity production credit determined under section 45(a), and
(iii) The investment credit determined under section 46, but only to the extent properly allocable to the energy credit determined under section 48.
(3) Applicable taxpayer. The term applicable taxpayer means a taxpayer that meets the requirements set forth in § 1.59A-2(b).
(4) Bank. The term bank has the meaning provided in section 581.
(5) Base erosion and anti-abuse tax rate. The term base erosion and anti-abuse tax rate means the percentage that the taxpayer applies to its modified taxable income for the taxable year to calculate its base erosion minimum tax amount. See § 1.59A-5(c) for the base erosion and anti-abuse tax rate applicable for the relevant taxable year.
(6) Business interest expense. The term business interest expense, with respect to a taxpayer and a taxable year, has the meaning provided in § 1.163(j)-1(b)(3).
(7) Deduction. The term deduction means any deduction allowable under chapter 1 of subtitle A of the Internal Revenue Code.
(8) Disallowed business interest expense carryforward. The term disallowed business interest expense carryforward has the meaning provided in § 1.163(j)-1(b)(11).
(9) Domestic related business interest expense. The term domestic related business interest expense for any taxable year is the taxpayer's business interest expense paid or accrued to a related party that is not a foreign related party.
(10) Foreign person. The term foreign person means any person who is not a United States person. For purposes of the preceding sentence, a United States person has the meaning provided in section 7701(a)(30), except that any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States is not a United States person. See § 1.59A-7(b) for rules applicable to partnerships.
(11) Foreign related business interest expense. The term foreign related business interest expense for any taxable year is the taxpayer's business interest expense paid or accrued to a foreign related party.
(12) Foreign related party. The term foreign related party means a foreign person, as defined in paragraph (b)(10) of this section, that is a related party, as defined in paragraph (b)(17) of this section, with respect to the taxpayer. In addition, for purposes of § 1.59A-3(b)(4)(v)(B) (relating to internal dealings under certain income tax treaties), a foreign related party also includes the foreign corporation's home office or a foreign branch of the foreign corporation. See § 1.59A-7(b), (c), and (f) for rules applicable to partnerships.
(13) Gross receipts. The term gross receipts has the meaning provided in § 1.448-1T(f)(2)(iv).
(14) Member of an aggregate group. The term member of an aggregate group means a corporation that is included in an aggregate group, as defined in paragraph (b)(1) of this section.
(15) Registered securities dealer. The term registered securities dealer means any dealer as defined in section 3(a)(5) of the Securities Exchange Act of 1934 that is registered, or required to be registered, under section 15 of the Securities Exchange Act of 1934.
(16) Regular tax liability. The term regular tax liability has the meaning provided in section 26(b).
(17) Related party—(i) In general. A related party, with respect to an applicable taxpayer, is—
(A) Any 25-percent owner of the taxpayer;
(B) Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer; or
(C) A controlled taxpayer within the meaning of § 1.482-1(i)(5) together with, or with respect to, the taxpayer.
(ii) 25-percent owner. With respect to any corporation, a 25-percent owner means any person who owns at least 25 percent of—
(A) The total voting power of all classes of stock of the corporation entitled to vote; or
(B) The total value of all classes of stock of the corporation.
(iii) Application of section 318. Section 318 applies for purposes of paragraphs (b)(17)(i) and (ii) of this section, except that—
(A) “10 percent” is substituted for “50 percent” in section 318(a)(2)(C); and
(B) Section 318(a)(3)(A) through (C) are not applied so as to consider a United States person as owning stock that is owned by a person who is not a United States person.
(18) TLAC long-term debt required amount. The term TLAC long-term debt required amount means the specified minimum amount of debt that is required pursuant to 12 CFR 252.162(a).
(19) TLAC securities amount. The term TLAC securities amount is the sum of the adjusted issue prices (as determined for purposes of § 1.1275-1(b)) of all TLAC securities issued and outstanding by the taxpayer, without regard to whether interest thereunder would be a base erosion payment absent § 1.59A-3(b)(3)(v).
(20) TLAC security. The term TLAC security means an eligible internal debt security, as defined in 12 CFR 252.161.
(21) Unrelated business interest expense. The term unrelated business interest expense for any taxable year is the taxpayer's business interest expense paid or accrued to a party that is not a related party.
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Treas. Reg. §1.59A-10Applicability date
(a) General applicability date. Sections 1.59A-1 through 1.59A-9, other than the provisions described in the first sentence of paragraph (b) of this section or in paragraph (c) of this section, apply to taxable years ending on or after December 17, 2018. However, taxpayers may apply the regulations in this paragraph (a) in their entirety for taxable years beginning after December 31, 2017, and ending before December 17, 2018. In lieu of applying the regulations referred to in the first sentence of this paragraph (a), taxpayers may apply the provisions matching §§ 1.59A-1 through 1.59A-9 from the Internal Revenue Bulletin (IRB) 2019-02 (https:www.irs.gov/irb2019-02_IRB) in their entirety for all taxable years beginning after December 31, 2017, and ending on or before December 6, 2019.
(b) Exception. Sections 1.59A-2(c)(2)(ii) and (c)(4) through (6), 1.59A-3(b)(3)(iii)(C), 1.59A-3(c)(5) and (6), and 1.59A-9(b)(4) apply to taxable years beginning on or after October 9, 2020, and §§ 1.59A-7(c)(5)(v) and 1.59A-9(b)(5) and (6) apply to taxable years ending on or after December 2, 2019. Taxpayers may apply those regulations in their entirety for taxable years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply them in their entirety for all subsequent taxable years. Alternatively, taxpayers may apply only § 1.59A-3(c)(5) and (6) for taxable years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply § 1.59A-3(c)(5) and (6) in their entirety for all subsequent taxable years.
(c) Additional applicability dates for certain rules relating to securities lending transactions. Sections 1.59A-3(b)(2)(iv) and 1.59A-6(b)(3)(iii) and (iv) apply to taxable years beginning on or after December 17, 2025.
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Treas. Reg. §1.59A-10(a)General applicability date.
General applicability date. Sections 1.59A-1 through 1.59A-9, other than the provisions described in the first sentence of paragraph (b) of this section or in paragraph (c) of this section, apply to taxable years ending on or after December 17, 2018. However, taxpayers may apply the regulations in this paragraph (a) in their entirety for taxable years beginning after December 31, 2017, and ending before December 17, 2018. In lieu of applying the regulations referred to in the first sentence of this paragraph (a), taxpayers may apply the provisions matching §§ 1.59A-1 through 1.59A-9 from the Internal Revenue Bulletin (IRB) 2019-02 (https:www.irs.gov/irb2019-02_IRB) in their entirety for all taxable years beginning after December 31, 2017, and ending on or before December 6, 2019.
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Treas. Reg. §1.59A-10(b)Exception.
Exception. Sections 1.59A-2(c)(2)(ii) and (c)(4) through (6), 1.59A-3(b)(3)(iii)(C), 1.59A-3(c)(5) and (6), and 1.59A-9(b)(4) apply to taxable years beginning on or after October 9, 2020, and §§ 1.59A-7(c)(5)(v) and 1.59A-9(b)(5) and (6) apply to taxable years ending on or after December 2, 2019. Taxpayers may apply those regulations in their entirety for taxable years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply them in their entirety for all subsequent taxable years. Alternatively, taxpayers may apply only § 1.59A-3(c)(5) and (6) for taxable years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply § 1.59A-3(c)(5) and (6) in their entirety for all subsequent taxable years.
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Treas. Reg. §1.59A-10(c)Additional applicability dates for certain rules relating to securities lending transactions.
Additional applicability dates for certain rules relating to securities lending transactions. Sections 1.59A-3(b)(2)(iv) and 1.59A-6(b)(3)(iii) and (iv) apply to taxable years beginning on or after December 17, 2025.
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Treas. Reg. §1.59A-2Applicable taxpayer
(a) Scope. This section provides rules for determining whether a taxpayer is an applicable taxpayer. Paragraph (b) of this section defines an applicable taxpayer. Paragraph (c) of this section provides rules for determining whether a taxpayer is an applicable taxpayer by reference to the aggregate group of which the taxpayer is a member. Paragraph (d) of this section provides rules regarding the gross receipts test. Paragraph (e) of this section provides rules regarding the base erosion percentage test. Paragraph (f) of this section provides examples illustrating the rules of this section.
(b) Applicable taxpayer. For purposes of section 59A, a taxpayer is an applicable taxpayer with respect to any taxable year if the taxpayer—
(1) Is a corporation, but not a regulated investment company, a real estate investment trust, or an S corporation;
(2) Satisfies the gross receipts test of paragraph (d) of this section; and
(3) Satisfies the base erosion percentage test of paragraph (e) of this section.
(c) Aggregation rules—(1) In general. Solely for purposes of this section and § 1.59A-4, a taxpayer that is a member of an aggregate group determines its gross receipts and its base erosion percentage on the basis of the aggregate group. For these purposes, transactions that occur between members of the taxpayer's aggregate group that were members of the aggregate group as of the time of the transaction are not taken into account. In the case of a foreign corporation that is a member of an aggregate group, only transactions that occur between members of the aggregate group and that relate to income effectively connected with, or treated as effectively connected with, the conduct of a trade or business in the United States are not taken into account for this purpose. In the case of a foreign corporation that is a member of an aggregate group and that is subject to tax on a net basis pursuant to an applicable income tax treaty of the United States, only transactions that occur between members of the aggregate group and that relate to income that is taken into account in determining its net taxable income are not taken into account for this purpose. For purposes of this paragraph (c)(1), each payment or accrual is treated as a separate transaction.
(2) Aggregate group determined with respect to each taxpayer—(i) In general. Solely for purposes of this section, an aggregate group is determined with respect to each taxpayer. As a result, the aggregate group of one taxpayer may be different than the aggregate group of another member of the taxpayer's aggregate group.
(ii) Change in the composition of an aggregate group. A change in ownership of the taxpayer (for example, a sale of the taxpayer to a third party) does not cause the taxpayer to leave its own aggregate group. Instead, any members of the taxpayer's aggregate group before the change in ownership that are no longer members following the change in ownership are treated as having left the taxpayer's aggregate group, and any new members that become members of the taxpayer's aggregate group following the change in ownership are treated as having joined the taxpayer's aggregate group. A change in ownership of another member of the aggregate group of the taxpayer (for example, a sale of the member to a third party) may result in the member joining or leaving the aggregate group of the taxpayer. See paragraph (c)(4) of this section for the treatment of members joining or leaving the aggregate group of a taxpayer.
(3) Taxable year of members of an aggregate group. Solely for purposes of this section, a taxpayer that is a member of an aggregate group measures the gross receipts and base erosion percentage of the aggregate group for a taxable year by reference to the taxpayer's gross receipts, base erosion tax benefits, and deductions for the taxable year and the gross receipts, base erosion tax benefits, and deductions of each member of the aggregate group for the taxable year of the member that ends with or within the taxpayer's taxable year.
(4) Periods before and after a corporation is a member of an aggregate group—(i) In general. Solely for purposes of this section, to determine the gross receipts and the base erosion percentage of the aggregate group of a taxpayer, the taxpayer takes into account only the portion of another corporation's taxable year during which the corporation is a member of the aggregate group of the taxpayer. The gross receipts, base erosion tax benefits, and deductions of a corporation that are properly included in the gross receipts and base erosion percentage of the aggregate group of a taxpayer are not reduced as a result of the member leaving the aggregate group of the taxpayer.
(ii) Deemed taxable year-end. Solely for purposes of this paragraph (c), if a corporation leaves or joins the aggregate group of a taxpayer, the corporation is treated as ceasing to be a member of the aggregate group at the time of its taxable year-end, or becoming a member of the aggregate group immediately after the time of its taxable year-end, resulting from the transaction. For purposes of this paragraph (c), if a corporation joins or leaves an aggregate group in a transaction that does not result in the corporation having a taxable year-end, the corporation is treated as having a taxable year-end (“deemed taxable year-end”) at the end of the day on which the transaction occurs.
(iii) Items allocable to deemed taxable years before and after deemed taxable year-end. Solely for purposes of this paragraph (c), a corporation that has a deemed taxable year-end determines gross receipts, base erosion tax benefits, and deductions attributable to the deemed taxable year ending upon, or beginning immediately after, the deemed taxable year-end by either treating the corporation's books as closing (“deemed closing of the books”) at the deemed taxable year-end or, in the case of items other than extraordinary items, allocating those items on a pro-rata basis without a closing of the books. Extraordinary items are allocated to the deemed taxable year ending upon, or beginning immediately after, the deemed taxable year-end based on the day that they are taken into account. For purposes of applying this paragraph (c)(4)(iii), extraordinary items that are attributable to a transaction that occurs during the portion of the corporation's day after the event resulting in the corporation joining or leaving the aggregate group are treated as taken into account at the beginning of the following day. Additionally, for purposes of applying this paragraph (c)(4)(iii), “extraordinary items” include the items enumerated in § 1.1502-76(b)(2)(ii)(C) as well as any other payment not made in the ordinary course of business that would be treated as a base erosion payment.
(5) Short taxable year—(i) Short period of the taxpayer—(A) In general. Solely for purposes of this section, if a taxpayer has a taxable year of fewer than 12 months (a short period), the gross receipts, base erosion tax benefits, and deductions of the taxpayer are annualized by multiplying the total amount for the short period by 365 and dividing the result by the number of days in the short period.
(B) Determining the gross receipts and base erosion percentage of the aggregate group of a taxpayer for a short period. When a taxpayer has a taxable year that is a short period and a member of the taxpayer's aggregate group does not have a taxable year that ends with or within the taxpayer's taxable year as a result of the taxpayer's short period, the taxpayer must use a reasonable approach to determine the gross receipts and base erosion percentage of its aggregate group for the short period. A reasonable approach should neither over-count nor under-count the gross receipts, base erosion tax benefits, and deductions of the aggregate group of the taxpayer. A reasonable approach does not include an approach that does not take into account the gross receipts, base erosion tax benefits, or deductions of the member. The taxpayer must consistently apply the reasonable approach. Examples of a reasonable approach may include an approach that takes into account 12 months of gross receipts, base erosion tax benefits, and deductions of the member by reference to—
(1) The 12-month period ending on the last day of the short period;
(2) The member's taxable year that ends nearest to the last day of the short period or that begins nearest to the first day of the short period; or
(3) An average of the two taxable years of the member ending before and after the short period.
(ii) Short period of a member of the taxpayer's aggregate group—(A) Multiple taxable years of a member of the taxpayer's aggregate group comprised of more than 12 months. If a member of a taxpayer's aggregate group has more than one taxable year ending with or within the taxpayer's taxable year, and the member's taxable years ending with or within the taxpayer's taxable year are comprised of more than 12 months in total, then the aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized for purposes of determining the gross receipts and base erosion percentage of the taxpayer's aggregate group. The aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized by multiplying the total amount for the member's taxable years by 365 and dividing the result by the total number of days in the multiple taxable years.
(B) Short period or periods of a member of the taxpayer's aggregate group comprised of fewer than 12 months from change in taxable year. If, as a result of a member of a taxpayer's aggregate group changing its taxable year-end (other than as a result of the application of § 1.1502-76(a)), the member's taxable year or years ending with or within the taxpayer's taxable year are comprised of fewer than 12 months in total, then the aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized for purposes of determining the gross receipts and base erosion percentage of the taxpayer's aggregate group. The aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized by multiplying the total amount for the member's taxable year or years by 365 and dividing the result by the total number of days in the taxable year or years.
(iii) Anti-abuse rule. If a taxpayer or a member of a taxpayer's aggregate group enters into a transaction (or series of transactions), plan, or arrangement with another corporation that is a member of the aggregate group or a foreign related party that has a principal purpose of changing the period taken into account under the gross receipts test or the base erosion percentage test to avoid applicable taxpayer status under paragraph (b) of this section, then the gross receipts test or base erosion percentage test, respectively, applies as if that transaction (or series of transactions), plan, or arrangement had not occurred.
(6) Treatment of predecessors—(i) In general. Solely for purposes of this section, in determining gross receipts under paragraph (d) of this section, any reference to a taxpayer includes a reference to any predecessor of the taxpayer. For this purpose, a predecessor is the distributor or transferor corporation in a transaction described in section 381(a) in which the taxpayer is the acquiring corporation. For purposes of determining the gross receipts of a predecessor that are taken into account by a taxpayer, the operating rules set forth in this paragraph (c) and in paragraph (d) of this section are applied to the same extent they were applied to the predecessor.
(ii) No duplication. If the taxpayer or any member of its aggregate group is also a predecessor of the taxpayer or any member of its aggregate group, the gross receipts of each member are taken into account only once.
(7) Partnerships. For the treatment of partnerships for purposes of determining gross receipts and base erosion tax benefits, see § 1.59A-7(e)(2) and (d), respectively.
(8) Transition rule for aggregate group members with different taxable years. If the taxpayer has a different taxable year than another member of the taxpayer's aggregate group (other member), and the other member is eligible for the exception in § 1.59A-3(b)(3)(vi) (amounts paid or accrued in taxable years beginning before January 1, 2018) with respect to a taxable year ending with or within the taxpayer's taxable year (“excepted taxable year”), the excepted taxable year of the other member is not taken into account for purposes of paragraph (e) of this section. This rule applies solely for purposes of determining whether a taxpayer is an applicable taxpayer under this section.
(9) Consolidated groups. For the treatment of consolidated groups for purposes of determining gross receipts and base erosion tax benefits, see § 1.1502-59A(b).
(d) Gross receipts test—(1) Amount of gross receipts. A taxpayer, or the aggregate group of which the taxpayer is a member, satisfies the gross receipts test of this section if it has average annual gross receipts of at least $500,000,000 for the three-taxable-year period ending with the preceding taxable year.
(2) Taxpayer not in existence for entire three-year period. If a taxpayer was not in existence for the entire three-year period referred to in paragraph (d)(1) of this section, the taxpayer determines a gross receipts average for the period that it was in existence (which includes gross receipts in the current year).
(3) Gross receipts of foreign corporations. With respect to any foreign corporation, only gross receipts that are taken into account in determining income that is, or is treated as, effectively connected with the conduct of a trade or business within the United States are taken into account for purposes of paragraph (d)(1) of this section. In the case of a foreign corporation that is a member of an aggregate group and that is subject to tax on a net basis pursuant to an applicable income tax treaty of the United States, the foreign corporation includes only gross receipts that are attributable to transactions taken into account in determining its net taxable income.
(4) Gross receipts of an insurance company. Solely for purposes of this section, for any corporation that is subject to tax under subchapter L or any corporation that would be subject to tax under subchapter L if that corporation were a domestic corporation, gross receipts are reduced by return premiums (within the meaning of section 803(a)(1)(B) and section 832(b)(4)(A)), but are not reduced by any reinsurance premiums paid or accrued.
(5) Reductions in gross receipts. For purposes of this section, gross receipts for any taxable year are reduced by returns and allowances made during that taxable year.
(6) Gross receipts of consolidated groups. For purposes of this section, the gross receipts of a consolidated group are determined by aggregating the gross receipts of all of the members of the consolidated group. See § 1.1502-59A(b).
(e) Base erosion percentage test—(1) In general. A taxpayer, or the aggregate group of which the taxpayer is a member, satisfies the base erosion percentage test if its base erosion percentage is three percent or higher.
(2) Base erosion percentage test for banks and registered securities dealers—(i) In general. A taxpayer that is a member of an affiliated group (as defined in section 1504(a)(1)) that includes a bank (as defined in § 1.59A-1(b)(4)) or a registered securities dealer (as defined in section § 1.59A-1(b)(15)) satisfies the base erosion percentage test if its base erosion percentage is two percent or higher.
(ii) Aggregate groups. An aggregate group of which a taxpayer is a member and that includes a bank or a registered securities dealer that is a member of an affiliated group (as defined in section 1504(a)(1)) is subject to the base erosion percentage threshold described in paragraph (e)(2)(i) of this section.
(iii) De minimis exception for banking and registered securities dealer activities. An aggregate group that includes a bank or a registered securities dealer that is a member of an affiliated group (as defined in section 1504(a)(1)) is not treated as including a bank or registered securities dealer for purposes of paragraph (e)(2)(i) of this section for a taxable year, if, for that taxable year, the total gross receipts of the aggregate group attributable to the bank or the registered securities dealer (or attributable to all of the banks and registered securities dealers in the group, if more than one) represent less than two percent of the total gross receipts of the aggregate group, as determined under paragraph (d) of this section. When there is no aggregate group, a consolidated group that includes a bank or a registered securities dealer is not treated as including a bank or registered securities dealer for purposes of paragraph (e)(2)(i) of this section for a taxable year, if, for that taxable year, the total gross receipts of the consolidated group attributable to the bank or the registered securities dealer (or attributable to all of the banks or registered securities dealers in the group, if more than one) represent less than two percent of the total gross receipts of the consolidated group, as determined under paragraph (d) of this section.
(3) Computation of base erosion percentage—(i) In general. The taxpayer's base erosion percentage for any taxable year is determined by dividing—
(A) The aggregate amount of the taxpayer's (or in the case of a taxpayer that is a member of an aggregate group, the aggregate group's) base erosion tax benefits (as defined in § 1.59A-3(c)(1)) for the taxable year, by
(B) The sum of—
(1) The aggregate amount of the deductions (including deductions for base erosion tax benefits described in § 1.59A-3(c)(1)(i) and base erosion tax benefits described in § 1.59A-3(c)(1)(ii)) allowable to the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, any member of the aggregate group) under chapter 1 of Subtitle A for the taxable year;
(2) The base erosion tax benefits described in § 1.59A-3(c)(1)(iii) with respect to any premiums or other consideration paid or accrued by the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, any member of the aggregate group) to a foreign related party for any reinsurance payment taken into account under sections 803(a)(1)(B) or 832(b)(4)(A) for the taxable year; and
(3) Any amount paid or accrued by the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, any member of the aggregate group) resulting in a reduction of gross receipts described in § 1.59A-3(c)(1)(iv) for the taxable year.
(ii) Certain items not taken into account in denominator. Except as provided in paragraph (e)(3)(viii) of this section, the amount under paragraph (e)(3)(i)(B) of this section is determined by not taking into account—
(A) Any deduction allowed under section 172, 245A, or 250 for the taxable year;
(B) Any deduction for amounts paid or accrued for services to which the exception described in § 1.59A-3(b)(3)(i) applies;
(C) Any deduction for qualified derivative payments that are not treated as base erosion payments by reason of § 1.59A-3(b)(3)(ii);
(D) Any exchange loss within the meaning of § 1.988-2 from a section 988 transaction as described in § 1.988-1(a)(1) that is not treated as a base erosion payment by reason of § 1.59A-3(b)(3)(iv);
(E) Any deduction for amounts paid or accrued to foreign related parties with respect to TLAC securities and foreign TLAC securities that are not treated as base erosion payments by reason of § 1.59A-3(b)(3)(v);
(F) Any reinsurance losses incurred and claims payments described in § 1.59A-3(b)(3)(ix); and
(G) Any deduction not allowed in determining taxable income for the taxable year.
(iii) Effect of treaties on base erosion percentage determination. See § 1.59A-3(c)(2) and (3).
(iv) Amounts paid or accrued between members of a consolidated group. See § 1.1502-59A(b).
(v) Deductions and base erosion tax benefits from partnerships. See § 1.59A-7(b), (d), and (e).
(vi) Mark-to-market positions. For any position with respect to which the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, a member of the aggregate group) applies a mark-to-market method of accounting for U.S. federal income tax purposes, the taxpayer must determine its gain or loss with respect to that position for any taxable year by combining all items of income, gain, loss, or deduction arising with respect to the position during the taxable year, regardless of how each item arises (including from a payment, accrual, or mark) for purposes of paragraph (e)(3) of this section. See paragraph (f)(1) of this section (Example 1) for an illustration of this rule. For purposes of section 59A, a taxpayer computes its losses resulting from positions subject to a mark-to-market regime under the Internal Revenue Code based on a single mark for the taxable year on the earlier of the last business day of the taxpayer's taxable year and the disposition (whether by sale, offset, exercise, termination, expiration, maturity, or other means) of the position, regardless of how frequently a taxpayer marks to market for other purposes. See 1.59A-3(b)(2)(iv) for the application of this rule for purposes of determining the amount of base erosion payments.
(vii) Reinsurance losses incurred and claims payments. Except as provided in paragraph (e)(3)(ii)(F) of this section, amounts paid for losses incurred (as defined in section 832(b)(5)) and claims and benefits under section 805(a)(1) are taken into account for purposes of paragraph (e)(3)(i)(B)(1) of this section.
(viii) Certain payments that qualify for the effectively connected income exception and another base erosion payment exception. Subject to paragraph (c) of this section (transactions that occur between members of the taxpayer's aggregate group), a payment that qualifies for the effectively connected income exception described in § 1.59A-3(b)(3)(iii) and either the service cost method exception described in § 1.59A-3(b)(3)(i), the qualified derivative payment exception described in § 1.59A-3(b)(3)(ii), or the TLAC exception described in § 1.59A-3(b)(3)(v) is not subject to paragraph (e)(3)(ii)(B), (C), or (E) of this section and those amounts are included in the denominator of the base erosion percentage if the foreign related party who received the payment is not a member of the aggregate group.
(f) Examples. The following examples illustrate the rules of this section.
(1) Example 1: Mark-to-market—(i) Facts. (A) Foreign Parent (FP) is a foreign corporation that owns all of the stock of domestic corporation (DC). FP is a foreign related party of DC under § 1.59A-1(b)(12). DC is a registered securities dealer that does not hold any securities for investment. On January 1 of year 1, DC enters into two interest rate swaps for a term of two years, one with unrelated Customer A as the counterparty (position A) and one with unrelated Customer B as the counterparty (position B). Each of the swaps provides for semiannual periodic payments to be made or received on June 30 and December 31. No party makes any payment to any other party upon initiation of either of the swaps (that is, they are entered into at-the-money). DC is required to mark-to-market positions A and B for U.S. federal income tax purposes. DC is a calendar year taxpayer.
(B) For position A in year 1, DC makes a payment of $150x on June 30, and receives a payment of $50x on December 31. There are no other payments in year 1. On December 31, position A has a value to DC of $110x (that is, position A is in-the-money by $110x).
(C) For position B in year 1, DC receives a payment of $120x on June 30, and makes a payment of $30x on December 31. There are no other payments in year 1. On December 31, position B has a value to DC of ($130x) (that is, position B is out-of-the-money by $130x).
(ii) Analysis. (A) With respect to position A, based on the total amount of payments made and received in year 1, DC has a net deduction of $100x. In addition, DC has a mark-to-market gain of $110x. As described in paragraph (e)(3)(vi) of this section, the mark-to-market gain of $110x is combined with the net deduction of $100x resulting from the payments. Therefore, with respect to position A, DC has a gain of $10x, and thus has no deduction in year 1 for purposes of section 59A.
(B) With respect to position B, based on the total amount of payments made and received in year 1, DC has net income of $90x. In addition, DC has a mark-to-market loss of $130x. As described in paragraph (e)(3)(vi) of this section, the mark-to-market loss of $130x is combined with the net income of $90x resulting from the payments. Therefore, with respect to position B, DC has a loss of $40x, and thus has a $40x deduction in year 1 for purposes of section 59A.
(2) Example 2: Member leaving an aggregate group—(i) Facts. Parent Corporation wholly owns Corporation 1 and Corporation 2. Each corporation is a domestic corporation and a calendar-year taxpayer that does not file a consolidated return. The aggregate group of Corporation 1 includes Parent Corporation and Corporation 2. At noon on June 30, Year 1, Parent Corporation sells the stock of Corporation 2 to Corporation 3, an unrelated domestic corporation, in exchange for cash consideration. Before the acquisition, Corporation 3 was not a member of an aggregate group. Corporation 2 and Corporation 3 do not file a consolidated return.
(ii) Analysis. (A) For purposes of section 59A, to determine the gross receipts and base erosion percentage of the aggregate group of Corporation 1 for calendar Year 1, Corporation 2 is treated as having a taxable year-end at the end of the day on June 30, Year 1, as a result of the sale. Corporation 2 leaves the aggregate group of Corporation 1 and Parent Corporation at the end of the day on June 30, Year 1. The aggregate group of Corporation 1 takes into account only the gross receipts, base erosion tax benefits, and deductions of Corporation 2 allocable to the period from January 1 to the end of the day on June 30, Year 1, in accordance with paragraph (c)(4)(ii) and (iii) of this section. The same results apply to the aggregate group of Parent Corporation for calendar Year 1. See paragraph (d)(1) and (2) of this section for the periods taken into account in determining whether the taxpayer or its aggregate group satisfies the gross receipts test.
(B) For purposes of section 59A, to determine the gross receipts and base erosion percentage of the aggregate group of Corporation 2 for calendar Year 1, each of Parent Corporation, Corporation 1, and Corporation 3 are treated as having a taxable year-end at the end of the day on June 30, Year 1. Because Corporation 2 does not have a short taxable year, paragraph (c)(5)(i) of this section does not apply. The aggregate group of Corporation 2 takes into account the gross receipts, base erosion tax benefits, and deductions of Parent Corporation and Corporation 1 allocable to the period from January 1 to the end of the day on June 30, Year 1, and the gross receipts, base erosion tax benefits, and deductions of Corporation 3 allocable to the period from July 1 to December 31, Year 1 in accordance with paragraph (c)(4)(ii) and (iii) of this section. See paragraph (d)(1) and (2) of this section for the periods taken into account in determining whether the taxpayer or its aggregate group satisfies the gross receipts test.
(2) Example 2: Member leaving an aggregate group—(i) Facts. Parent Corporation wholly owns Corporation 1 and Corporation 2. Each corporation is a domestic corporation and a calendar-year taxpayer that does not file a consolidated return. The aggregate group of Corporation 1 includes Parent Corporation and Corporation 2. At noon on June 30, Year 1, Parent Corporation sells the stock of Corporation 2 to Corporation 3, an unrelated domestic corporation, in exchange for cash consideration. Before the acquisition, Corporation 3 was not a member of an aggregate group. Corporation 2 and Corporation 3 do not file a consolidated return.
(ii) Analysis. (A) For purposes of section 59A, to determine the gross receipts and base erosion percentage of the aggregate group of Corporation 1 for calendar Year 1, Corporation 2 is treated as having a taxable year-end at the end of the day on June 30, Year 1, as a result of the sale. Corporation 2 leaves the aggregate group of Corporation 1 and Parent Corporation at the end of the day on June 30, Year 1. The aggregate group of Corporation 1 takes into account only the gross receipts, base erosion tax benefits, and deductions of Corporation 2 allocable to the period from January 1 to the end of the day on June 30, Year 1, in accordance with paragraph (c)(4)(ii) and (iii) of this section. The same results apply to the aggregate group of Parent Corporation for calendar Year 1. See paragraph (d)(1) and (2) of this section for the periods taken into account in determining whether the taxpayer or its aggregate group satisfies the gross receipts test.
(B) For purposes of section 59A, to determine the gross receipts and base erosion percentage of the aggregate group of Corporation 2 for calendar Year 1, each of Parent Corporation, Corporation 1, and Corporation 3 are treated as having a taxable year-end at the end of the day on June 30, Year 1. Because Corporation 2 does not have a short taxable year, paragraph (c)(5)(i) of this section does not apply. The aggregate group of Corporation 2 takes into account the gross receipts, base erosion tax benefits, and deductions of Parent Corporation and Corporation 1 allocable to the period from January 1 to the end of the day on June 30, Year 1, and the gross receipts, base erosion tax benefits, and deductions of Corporation 3 allocable to the period from July 1 to December 31, Year 1 in accordance with paragraph (c)(4)(ii) and (iii) of this section. See paragraph (d)(1) and (2) of this section for the periods taken into account in determining whether the taxpayer or its aggregate group satisfies the gross receipts test.
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Treas. Reg. §1.59A-2(a)Scope.
Scope. This section provides rules for determining whether a taxpayer is an applicable taxpayer. Paragraph (b) of this section defines an applicable taxpayer. Paragraph (c) of this section provides rules for determining whether a taxpayer is an applicable taxpayer by reference to the aggregate group of which the taxpayer is a member. Paragraph (d) of this section provides rules regarding the gross receipts test. Paragraph (e) of this section provides rules regarding the base erosion percentage test. Paragraph (f) of this section provides examples illustrating the rules of this section.
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Treas. Reg. §1.59A-2(b)Applicable taxpayer.
Applicable taxpayer. For purposes of section 59A, a taxpayer is an applicable taxpayer with respect to any taxable year if the taxpayer—
(1) Is a corporation, but not a regulated investment company, a real estate investment trust, or an S corporation;
(2) Satisfies the gross receipts test of paragraph (d) of this section; and
(3) Satisfies the base erosion percentage test of paragraph (e) of this section.
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Treas. Reg. §1.59A-2(c)Aggregation rules—(1) In general.
Aggregation rules—(1) In general. Solely for purposes of this section and § 1.59A-4, a taxpayer that is a member of an aggregate group determines its gross receipts and its base erosion percentage on the basis of the aggregate group. For these purposes, transactions that occur between members of the taxpayer's aggregate group that were members of the aggregate group as of the time of the transaction are not taken into account. In the case of a foreign corporation that is a member of an aggregate group, only transactions that occur between members of the aggregate group and that relate to income effectively connected with, or treated as effectively connected with, the conduct of a trade or business in the United States are not taken into account for this purpose. In the case of a foreign corporation that is a member of an aggregate group and that is subject to tax on a net basis pursuant to an applicable income tax treaty of the United States, only transactions that occur between members of the aggregate group and that relate to income that is taken into account in determining its net taxable income are not taken into account for this purpose. For purposes of this paragraph (c)(1), each payment or accrual is treated as a separate transaction.
(2) Aggregate group determined with respect to each taxpayer—(i) In general. Solely for purposes of this section, an aggregate group is determined with respect to each taxpayer. As a result, the aggregate group of one taxpayer may be different than the aggregate group of another member of the taxpayer's aggregate group.
(ii) Change in the composition of an aggregate group. A change in ownership of the taxpayer (for example, a sale of the taxpayer to a third party) does not cause the taxpayer to leave its own aggregate group. Instead, any members of the taxpayer's aggregate group before the change in ownership that are no longer members following the change in ownership are treated as having left the taxpayer's aggregate group, and any new members that become members of the taxpayer's aggregate group following the change in ownership are treated as having joined the taxpayer's aggregate group. A change in ownership of another member of the aggregate group of the taxpayer (for example, a sale of the member to a third party) may result in the member joining or leaving the aggregate group of the taxpayer. See paragraph (c)(4) of this section for the treatment of members joining or leaving the aggregate group of a taxpayer.
(3) Taxable year of members of an aggregate group. Solely for purposes of this section, a taxpayer that is a member of an aggregate group measures the gross receipts and base erosion percentage of the aggregate group for a taxable year by reference to the taxpayer's gross receipts, base erosion tax benefits, and deductions for the taxable year and the gross receipts, base erosion tax benefits, and deductions of each member of the aggregate group for the taxable year of the member that ends with or within the taxpayer's taxable year.
(4) Periods before and after a corporation is a member of an aggregate group—(i) In general. Solely for purposes of this section, to determine the gross receipts and the base erosion percentage of the aggregate group of a taxpayer, the taxpayer takes into account only the portion of another corporation's taxable year during which the corporation is a member of the aggregate group of the taxpayer. The gross receipts, base erosion tax benefits, and deductions of a corporation that are properly included in the gross receipts and base erosion percentage of the aggregate group of a taxpayer are not reduced as a result of the member leaving the aggregate group of the taxpayer.
(ii) Deemed taxable year-end. Solely for purposes of this paragraph (c), if a corporation leaves or joins the aggregate group of a taxpayer, the corporation is treated as ceasing to be a member of the aggregate group at the time of its taxable year-end, or becoming a member of the aggregate group immediately after the time of its taxable year-end, resulting from the transaction. For purposes of this paragraph (c), if a corporation joins or leaves an aggregate group in a transaction that does not result in the corporation having a taxable year-end, the corporation is treated as having a taxable year-end (“deemed taxable year-end”) at the end of the day on which the transaction occurs.
(iii) Items allocable to deemed taxable years before and after deemed taxable year-end. Solely for purposes of this paragraph (c), a corporation that has a deemed taxable year-end determines gross receipts, base erosion tax benefits, and deductions attributable to the deemed taxable year ending upon, or beginning immediately after, the deemed taxable year-end by either treating the corporation's books as closing (“deemed closing of the books”) at the deemed taxable year-end or, in the case of items other than extraordinary items, allocating those items on a pro-rata basis without a closing of the books. Extraordinary items are allocated to the deemed taxable year ending upon, or beginning immediately after, the deemed taxable year-end based on the day that they are taken into account. For purposes of applying this paragraph (c)(4)(iii), extraordinary items that are attributable to a transaction that occurs during the portion of the corporation's day after the event resulting in the corporation joining or leaving the aggregate group are treated as taken into account at the beginning of the following day. Additionally, for purposes of applying this paragraph (c)(4)(iii), “extraordinary items” include the items enumerated in § 1.1502-76(b)(2)(ii)(C) as well as any other payment not made in the ordinary course of business that would be treated as a base erosion payment.
(5) Short taxable year—(i) Short period of the taxpayer—(A) In general. Solely for purposes of this section, if a taxpayer has a taxable year of fewer than 12 months (a short period), the gross receipts, base erosion tax benefits, and deductions of the taxpayer are annualized by multiplying the total amount for the short period by 365 and dividing the result by the number of days in the short period.
(B) Determining the gross receipts and base erosion percentage of the aggregate group of a taxpayer for a short period. When a taxpayer has a taxable year that is a short period and a member of the taxpayer's aggregate group does not have a taxable year that ends with or within the taxpayer's taxable year as a result of the taxpayer's short period, the taxpayer must use a reasonable approach to determine the gross receipts and base erosion percentage of its aggregate group for the short period. A reasonable approach should neither over-count nor under-count the gross receipts, base erosion tax benefits, and deductions of the aggregate group of the taxpayer. A reasonable approach does not include an approach that does not take into account the gross receipts, base erosion tax benefits, or deductions of the member. The taxpayer must consistently apply the reasonable approach. Examples of a reasonable approach may include an approach that takes into account 12 months of gross receipts, base erosion tax benefits, and deductions of the member by reference to—
(1) The 12-month period ending on the last day of the short period;
(2) The member's taxable year that ends nearest to the last day of the short period or that begins nearest to the first day of the short period; or
(3) An average of the two taxable years of the member ending before and after the short period.
(ii) Short period of a member of the taxpayer's aggregate group—(A) Multiple taxable years of a member of the taxpayer's aggregate group comprised of more than 12 months. If a member of a taxpayer's aggregate group has more than one taxable year ending with or within the taxpayer's taxable year, and the member's taxable years ending with or within the taxpayer's taxable year are comprised of more than 12 months in total, then the aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized for purposes of determining the gross receipts and base erosion percentage of the taxpayer's aggregate group. The aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized by multiplying the total amount for the member's taxable years by 365 and dividing the result by the total number of days in the multiple taxable years.
(B) Short period or periods of a member of the taxpayer's aggregate group comprised of fewer than 12 months from change in taxable year. If, as a result of a member of a taxpayer's aggregate group changing its taxable year-end (other than as a result of the application of § 1.1502-76(a)), the member's taxable year or years ending with or within the taxpayer's taxable year are comprised of fewer than 12 months in total, then the aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized for purposes of determining the gross receipts and base erosion percentage of the taxpayer's aggregate group. The aggregate group member's gross receipts, base erosion tax benefits, and deductions are annualized by multiplying the total amount for the member's taxable year or years by 365 and dividing the result by the total number of days in the taxable year or years.
(iii) Anti-abuse rule. If a taxpayer or a member of a taxpayer's aggregate group enters into a transaction (or series of transactions), plan, or arrangement with another corporation that is a member of the aggregate group or a foreign related party that has a principal purpose of changing the period taken into account under the gross receipts test or the base erosion percentage test to avoid applicable taxpayer status under paragraph (b) of this section, then the gross receipts test or base erosion percentage test, respectively, applies as if that transaction (or series of transactions), plan, or arrangement had not occurred.
(6) Treatment of predecessors—(i) In general. Solely for purposes of this section, in determining gross receipts under paragraph (d) of this section, any reference to a taxpayer includes a reference to any predecessor of the taxpayer. For this purpose, a predecessor is the distributor or transferor corporation in a transaction described in section 381(a) in which the taxpayer is the acquiring corporation. For purposes of determining the gross receipts of a predecessor that are taken into account by a taxpayer, the operating rules set forth in this paragraph (c) and in paragraph (d) of this section are applied to the same extent they were applied to the predecessor.
(ii) No duplication. If the taxpayer or any member of its aggregate group is also a predecessor of the taxpayer or any member of its aggregate group, the gross receipts of each member are taken into account only once.
(7) Partnerships. For the treatment of partnerships for purposes of determining gross receipts and base erosion tax benefits, see § 1.59A-7(e)(2) and (d), respectively.
(8) Transition rule for aggregate group members with different taxable years. If the taxpayer has a different taxable year than another member of the taxpayer's aggregate group (other member), and the other member is eligible for the exception in § 1.59A-3(b)(3)(vi) (amounts paid or accrued in taxable years beginning before January 1, 2018) with respect to a taxable year ending with or within the taxpayer's taxable year (“excepted taxable year”), the excepted taxable year of the other member is not taken into account for purposes of paragraph (e) of this section. This rule applies solely for purposes of determining whether a taxpayer is an applicable taxpayer under this section.
(9) Consolidated groups. For the treatment of consolidated groups for purposes of determining gross receipts and base erosion tax benefits, see § 1.1502-59A(b).
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Treas. Reg. §1.59A-2(d)Gross receipts test—(1) Amount of gross receipts.
Gross receipts test—(1) Amount of gross receipts. A taxpayer, or the aggregate group of which the taxpayer is a member, satisfies the gross receipts test of this section if it has average annual gross receipts of at least $500,000,000 for the three-taxable-year period ending with the preceding taxable year.
(2) Taxpayer not in existence for entire three-year period. If a taxpayer was not in existence for the entire three-year period referred to in paragraph (d)(1) of this section, the taxpayer determines a gross receipts average for the period that it was in existence (which includes gross receipts in the current year).
(3) Gross receipts of foreign corporations. With respect to any foreign corporation, only gross receipts that are taken into account in determining income that is, or is treated as, effectively connected with the conduct of a trade or business within the United States are taken into account for purposes of paragraph (d)(1) of this section. In the case of a foreign corporation that is a member of an aggregate group and that is subject to tax on a net basis pursuant to an applicable income tax treaty of the United States, the foreign corporation includes only gross receipts that are attributable to transactions taken into account in determining its net taxable income.
(4) Gross receipts of an insurance company. Solely for purposes of this section, for any corporation that is subject to tax under subchapter L or any corporation that would be subject to tax under subchapter L if that corporation were a domestic corporation, gross receipts are reduced by return premiums (within the meaning of section 803(a)(1)(B) and section 832(b)(4)(A)), but are not reduced by any reinsurance premiums paid or accrued.
(5) Reductions in gross receipts. For purposes of this section, gross receipts for any taxable year are reduced by returns and allowances made during that taxable year.
(6) Gross receipts of consolidated groups. For purposes of this section, the gross receipts of a consolidated group are determined by aggregating the gross receipts of all of the members of the consolidated group. See § 1.1502-59A(b).
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Treas. Reg. §1.59A-2(e)Base erosion percentage test—(1) In general.
Base erosion percentage test—(1) In general. A taxpayer, or the aggregate group of which the taxpayer is a member, satisfies the base erosion percentage test if its base erosion percentage is three percent or higher.
(2) Base erosion percentage test for banks and registered securities dealers—(i) In general. A taxpayer that is a member of an affiliated group (as defined in section 1504(a)(1)) that includes a bank (as defined in § 1.59A-1(b)(4)) or a registered securities dealer (as defined in section § 1.59A-1(b)(15)) satisfies the base erosion percentage test if its base erosion percentage is two percent or higher.
(ii) Aggregate groups. An aggregate group of which a taxpayer is a member and that includes a bank or a registered securities dealer that is a member of an affiliated group (as defined in section 1504(a)(1)) is subject to the base erosion percentage threshold described in paragraph (e)(2)(i) of this section.
(iii) De minimis exception for banking and registered securities dealer activities. An aggregate group that includes a bank or a registered securities dealer that is a member of an affiliated group (as defined in section 1504(a)(1)) is not treated as including a bank or registered securities dealer for purposes of paragraph (e)(2)(i) of this section for a taxable year, if, for that taxable year, the total gross receipts of the aggregate group attributable to the bank or the registered securities dealer (or attributable to all of the banks and registered securities dealers in the group, if more than one) represent less than two percent of the total gross receipts of the aggregate group, as determined under paragraph (d) of this section. When there is no aggregate group, a consolidated group that includes a bank or a registered securities dealer is not treated as including a bank or registered securities dealer for purposes of paragraph (e)(2)(i) of this section for a taxable year, if, for that taxable year, the total gross receipts of the consolidated group attributable to the bank or the registered securities dealer (or attributable to all of the banks or registered securities dealers in the group, if more than one) represent less than two percent of the total gross receipts of the consolidated group, as determined under paragraph (d) of this section.
(3) Computation of base erosion percentage—(i) In general. The taxpayer's base erosion percentage for any taxable year is determined by dividing—
(A) The aggregate amount of the taxpayer's (or in the case of a taxpayer that is a member of an aggregate group, the aggregate group's) base erosion tax benefits (as defined in § 1.59A-3(c)(1)) for the taxable year, by
(B) The sum of—
(1) The aggregate amount of the deductions (including deductions for base erosion tax benefits described in § 1.59A-3(c)(1)(i) and base erosion tax benefits described in § 1.59A-3(c)(1)(ii)) allowable to the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, any member of the aggregate group) under chapter 1 of Subtitle A for the taxable year;
(2) The base erosion tax benefits described in § 1.59A-3(c)(1)(iii) with respect to any premiums or other consideration paid or accrued by the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, any member of the aggregate group) to a foreign related party for any reinsurance payment taken into account under sections 803(a)(1)(B) or 832(b)(4)(A) for the taxable year; and
(3) Any amount paid or accrued by the taxpayer (or in the case of a taxpayer that is a member of an aggregate group, any member of the aggregate group) resulting in a reduction of gross receipts described in § 1.59A-3(c)(1)(iv) for the taxable year.
(ii) Certain items not taken into account in denominator. Except as provided in paragraph (e)(3)(viii) of this section, the amount under paragraph (e)(3)(i)(B) of this section is determined by not taking into account—
(A) Any deduction allowed under section 172, 245A, or 250 for the taxable year;
(B) Any deduction for amounts paid or accrued for services to which the exception described in § 1.59A-3(b)(3)(i) applies;
(C) Any deduction for qualified derivative payments that are not treated as base erosion payments by reason of § 1.59A-3(b)(3)(ii);
(D) Any exchange loss within the meaning of § 1.988-2 from a section 988 transaction as described in § 1.988-1(a)(1) that is not treated as a base erosion payment by reason of § 1.59A-3(b)(3)(iv);
(E) Any deduction for amounts paid or accrued to foreign related parties with respect to TLAC securities and foreign TLAC securities that are not treated as base erosion payments by reason of § 1.59A-3(b)(3)(v);
(F) Any reinsurance losses incurred and claims payments described in § 1.59A-3(b)(3)(ix); and
(G) Any deduction not allowed in determining taxable income for the taxable year.
(iii) Effect of treaties on base erosion percentage determination. See § 1.59A-3(c)(2) and (3).
(iv) Amounts paid or accrued between members of a consolidated group. See § 1.1502-59A(b).
1 Citing Cases
Petitioners contend that Congress used the phrase “taxes described in paragraph (1), (2), or (3) of section 164(a)” in section 56(b)(l)(A)(ii) to deny deduction of real estate, personal property, and income taxes in computing AMTI while allowing deduction of section 59A environmental taxes and generation-skipping transfer taxes in computing AMTI.