Earnings Stripping under the BEAT

Abstract

The Base Erosion and Anti-Abuse Tax is generally regarded as among the most important changes wrought by the Tax Cuts and Jobs Act of 2017, which is itself regarded as among the most important pieces of tax legislation in the last several decades. This paper evaluates the new BEAT provision along with recently proposed regulations. The analysis makes several points about the nature of earnings stripping, the interaction of the BEAT with the new limitation on deducting business interest, the treatment of costs of goods sold under the BEAT, and the BEAT’s approach to depreciable and amortizable property whether purchased, leased or licensed.