The BEAT Tax, short for the Base Erosion and Anti-Abuse Tax, is designed to prevent businesses from moving their U.S. profits to other countries. Large enterprises, including Accenture and Western Union, are already warning shareholders that finances may take a hit as a result of BEAT tax, reports noted.
The publication noted that businesses are increasingly exploring new strategies to avoid the tax.
“We didn’t need to hammer U.S.-based companies in this way,” said Georgetown University law professor Itai Grinberg in an interview with the WSJ.
The legislation applies to corporates with gross receipts of at least $500 million, reports explained, adding that banks, insurance firms and professional service companies could be hit especially hard because of the volume of cross-border payments they complete. Companies that make cross-border payments to affiliates (like interest payments to foreign parents or royalty payments to overseas subsidiaries) that exceed 3 percent of total tax-deductible costs must recalculate its taxes, the publication explained.
The threshold is even lower for financial services firms, at 2 percent of tax deductions.
BEAT prevents businesses from taking deductions on payments to those affiliated parties across borders. Businesses must calculate taxes under BEAT and the regular tax system, then pay whichever is larger, reports said.
The idea is to target inter-company transfers of profits to move company money to jurisdictions with lower tax rates. It aims to curb the practice of inversion deals, in which a U.S. conglomerate shifts its headquarters abroad for tax purposes; according to the WSJ, inversion deals were a popular choice for businesses looking to avoid the U.S.’ 35 percent tax rate in favor of lower rates, like 12.5 percent in Ireland and 19 percent in the U.K.
Reports noted BEAT is expected to raise $150 billion for the federal government over the next decade.