Here’s what HIVE AI had to say about “What changes are made to the BEAT (Base Erosion and Anti-Abuse Tax) and other international minimum taxes under the One Big Beautiful Bill?”:
Changes to BEAT and International Minimum Taxes Under the One Big Beautiful Bill
The One Big Beautiful Bill Act (OBBBA) introduces significant modifications to the Base Erosion and Anti-Abuse Tax (BEAT) and other international minimum tax provisions, fundamentally altering the landscape of international tax compliance for multinational corporations. These changes represent a comprehensive restructuring of anti-base erosion measures while maintaining coordination with global minimum tax initiatives.
Base Erosion and Anti-Abuse Tax Rate Modifications
The OBBBA makes substantial changes to the BEAT rate structure by striking “10 percent” in paragraph (1) and inserting “10.5 percent”, and by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively. 1 1 This modification represents a permanent increase in the base BEAT rate from the current 10 percent to 10.5 percent for applicable taxpayers.
The legislation eliminates the previously scheduled rate increase structure that would have raised the BEAT rate to 12.5 percent for taxable years beginning after December 31, 2025. Under the prior law, for taxable years beginning after December 31, 2025, the rate was set at 12.5 percent. 2 By removing this escalation, the OBBBA provides rate certainty while maintaining a modest increase from the current 10 percent rate.
The amendments made by this section shall apply to taxable years beginning after December 31, 2025. 1 1 This effective date ensures that the new 10.5 percent rate will apply to all BEAT calculations for tax years beginning in 2026 and thereafter, providing multinational corporations with clear guidance for their international tax planning.
Enhanced Bank and Securities Dealer Provisions
The legislation maintains the enhanced BEAT rates for banks and registered securities dealers while making technical corrections to the statutory language. In the case of a taxpayer that is a member of an affiliated group (as defined in section 1504(a)(1)) that includes a bank or a registered securities dealer, the percentage otherwise in effect under paragraph (c)(1) of this section is increased by one percentage point. 2 Under the OBBBA modifications, this means banks and securities dealers will face an 11.5 percent BEAT rate instead of the standard 10.5 percent rate.
Section 59A(b)(2)(B)(ii), as redesignated by subsection (a)(2), is amended by striking “registered securities dealer” and inserting “securities dealer registered”. 1 1 This technical correction clarifies the terminology while maintaining the substantive application of the enhanced rate to these financial institutions.
The de minimis exception for banks and securities dealers remains unchanged, ensuring that paragraph (c)(2)(i) of this section does not apply to a taxpayer that is a member of an affiliated group (as defined in section 1504(a)(1)) that includes a bank or registered securities dealer if, in that taxable year, the total gross receipts of the affiliated 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 affiliated group. 2
BEAT Calculation and Credit Interaction Changes
The OBBBA maintains the fundamental structure of BEAT as a minimum tax while preserving the existing credit interaction rules. The BEAT operates as a minimum tax, so an applicable taxpayer is only subject to additional tax under the BEAT if the tax at the BEAT rate multiplied by the taxpayer’s modified taxable income exceeds the taxpayer’s regular tax liability, reduced by certain credits. Because of this latter provision, the BEAT formula has the effect of imposing the BEAT on the amount of those tax credits. 3
The legislation does not modify the existing credit restrictions under BEAT. In general, tax credits are subject to the BEAT except the research credit under section 41 and a portion of low income housing credits, renewable electricity production credits under section 45, and certain investment tax credits under section 46. Notably, this means that the foreign tax credit is currently subject to the BEAT. In taxable years beginning after December 31, 2025, all tax credits are subject to the BEAT. 3 This means that the foreign tax credit will continue to be subject to BEAT limitations, potentially creating additional compliance burdens for multinational corporations with significant foreign operations.
Technical Corrections and Cross-Reference Updates
The OBBBA includes several technical corrections to ensure proper cross-referencing within the tax code. Section 59A(h)(2)(B) is amended by striking “section 6038B(b)(2)” and inserting “section 6038A(b)(2)”. 1 1 This correction aligns the BEAT reporting requirements with the proper information reporting provisions for foreign-owned corporations.
Section 59A(i)(2) is amended by striking “subsection (g)” and inserting “subsection (h)”, and by striking “subsection (g)(3)” and inserting “subsection (h)(3)”. 1 1 These conforming amendments ensure that internal cross-references within the BEAT provisions remain accurate following the structural changes made by the legislation.
Integration with OECD Pillar Two Framework
The OBBBA’s modifications to BEAT occur within the broader context of international tax coordination efforts. As part of the process, the administration also successfully negotiated the US international tax system to be acknowledged as compliant with the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two minimum tax rules, preventing the inclusion of retaliatory tax rules in OBBBA that would have harmed foreign investment. 4
This coordination with Pillar Two represents a significant policy achievement, as it prevents potential double taxation scenarios while maintaining the integrity of the U.S. anti-base erosion framework. The acknowledgment of U.S. compliance with OECD standards provides certainty for multinational corporations operating across multiple jurisdictions and reduces the risk of conflicting minimum tax obligations.
Impact on Business Interest Limitation Calculations
The OBBBA introduces modifications to how international income items are treated for business interest limitation purposes, which indirectly affects BEAT calculations. Subparagraph (A) of section 163(j)(8) is amended by adding at the end the following new clause: “(vi) the amounts included in gross income under sections 951(a), 951A(a), and 78 (and the portion of the deductions allowed under sections 245A(a) (by reason of section 964(e)(4)) and 250(a)(1)(B) by reason of such inclusions), and”. 5 5
This change affects the calculation of adjusted taxable income for business interest limitation purposes by including various international income items. Since business interest deductions can constitute base erosion payments under BEAT, this modification may influence the overall tax burden for multinational corporations subject to both the business interest limitation and BEAT provisions.
Reporting and Compliance Requirements
The BEAT modifications under OBBBA maintain the existing reporting framework while ensuring proper coordination with information reporting requirements. Such information as the Secretary determines necessary to determine the base erosion minimum tax amount, base erosion payments, and base erosion tax benefits of the taxpayer for purposes of section 59A for the taxable year, and such other information as the Secretary determines necessary to carry out such section. For purposes of this paragraph, any term used in this paragraph which is also used in section 59A shall have the same meaning as when used in such section. 6
The enhanced reporting requirements ensure that the IRS has adequate information to properly administer the modified BEAT provisions while maintaining consistency in terminology and application across related international tax provisions.
Long-term Policy Implications
The OBBBA’s approach to BEAT represents a balanced policy framework that maintains anti-base erosion protections while providing rate certainty for multinational corporations. The OBBBA makes many permanent changes to international tax policy, notably by canceling the larger scheduled tax increases built into the tax code in 2026 and keeping the effective tax rates on international income closer to current policy values. 4
By eliminating the scheduled increase to 12.5 percent and establishing a permanent 10.5 percent rate, the legislation provides long-term planning certainty while maintaining the fundamental anti-abuse objectives of the BEAT regime. This approach supports international competitiveness while preserving the integrity of the U.S. tax base against erosion through related-party transactions.
The modifications to BEAT under the One Big Beautiful Bill Act represent a comprehensive approach to international minimum tax policy that balances anti-abuse objectives with competitive considerations. The permanent rate structure, technical corrections, and coordination with international frameworks provide a stable foundation for multinational tax planning while maintaining robust protections against base erosion activities.
Sources
1 One Big Beautiful Bill Act Sec. 70331. Extension and modification of base erosion minimum tax amount
2 T.D. 9885
3 T.D. 9910
4 Tax Foundation
5 One Big Beautiful Bill Act Sec. 70342. Definition of adjusted taxable income for business interest limitation
6 IRC § 6038A(b)
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