On December 13, 2018, the United States Treasury Department released proposed regulations (REG-104259-18) providing guidance on the Base Erosion and Anti-Abuse tax (BEAT) under Section 59A of the Internal Revenue Code. The proposed BEAT regulations provide guidance on various gating statutory thresholds and computational matters. Of particular note, the proposed regulations:

1. Confirm that the service cost method exception applies to the cost component of a service for which a markup is charged (assuming certain requirements are satisfied)
2. Exclude, as base erosion payments, amounts subject to US tax as effectively connected income
3. Treat cash or non-cash payments (e.g., stock consideration) as base erosion payments
4. Clarify that the base erosion percentage of a net operating loss (NOL) deduction is established in the year that the NOL is originally incurred (so the base erosion percentage of NOLs arising in tax years beginning before January 1, 2018, is zero.)
5. Provide that an NOL deduction cannot result in negative taxable income for purposes of calculating modified taxable income, while a current-year loss results in negative taxable income for computing modified taxable income
6. Generally treat a partnership as an aggregate for BEAT purposes
7. Confirm that a depreciation (or amortization) deduction allowed in tax years beginning after December 31, 2017, for depreciable (or amortizable) property acquired from a foreign related party before that tax year is not a base erosion tax benefit
8. Provides that the generally applicable lower 2% threshold does not apply to an aggregate or consolidated group with de minimis bank or registered securities dealer activities

A more detailed Tax Alert on the proposed regulations is forthcoming. A webcast on the proposed regulations will be held on December 20, 2018, at 3 p.m. EST. An invitation for the webcast will be sent soon.