Congress is advancing legislation that could significantly expand the scope of the Base Erosion and Anti-Abuse Tax (BEAT), posing increased tax exposure for many foreign-owned U.S. corporations. Under current law, BEAT applies only to large corporations with at least $500 million in average annual gross receipts and a base erosion percentage of 3% or more. These thresholds have historically shielded many foreign-parented U.S. entities from BEAT liability, even where substantial intercompany payments exist.

The proposals under consideration would replace the current BEAT framework with a broader regime under a new Section 899. The House version would eliminate the gross receipts and base erosion percentage thresholds altogether, applying BEAT to any U.S. corporation that is more than 50% foreign-owned. It would also expand the definition of base erosion payments to include service payments, purchases of tangible assets from related foreign affiliates, and royalty payments—even those already subject to U.S. withholding tax. The Senate version retains a reduced base erosion percentage threshold (0.5%) but is otherwise aligned in targeting similar payments and raising the BEAT rate.

If enacted, these changes would expose a much larger segment of foreign-owned U.S. companies—particularly those with intercompany royalties, service fees, or IP-related arrangements—to the BEAT minimum tax. We encourage impacted businesses to begin assessing their structures and payment flows in anticipation of possible enactment later this year.

Please reach out to us if you would like assistance in evaluating potential BEAT exposure or preparing for compliance under the new rules.