Question

Discussion Topic 1: The Tax Cuts and Jobs Act of 2017 enacted a new Code Section 59A tax. Explain the reason for this tax, who it applies to, and the specific rules related to this new provision.

Discussion Topic 2: Foreign persons may either engage in business in the U.S. or foreign persons may engage in investing activities in the United States. Discuss the various forms required for filing.

Answer 1

Answer-1)

Under the Tax Cuts and Jobs Act of 2017 enacted a new Code Section 59A tax Base erosion and anti-abuse tax (BEAT) whose main purpose limits the multinational corporation’s ability for shifting the profits from U.S. by making deductible payments to their affiliates in low-tax nations. Section 59A tax targets large corporations in United States that make deductible payments, such as royalties, interest, and specific service payments, to related foreign parties.

The new code is a minimum tax add-on wherein the US Corporation computes the regular US tax, at a rate of 21 percent, and then recomputed its tax at a lower rate of BEAT after adding back the deductible payments. When the regular tax is not higher than the BEAT, U.S. corporation need to pay the regular tax and the amount by which the BEAT would be exceeding the regular tax. The rate of BEAT in 2018 is 5 percent, in 2019 through 2025 it is 10 percent, and in 2026 and beyond it is 12.5 percent. The new code is applicable to the large multinational enterprises only, those with gross receipts exceeding the $500 million (averaged over the prior three years). Moreover also applicable only to a corporation that makes exceeding 3 percent of its total deductible payments to foreign affiliates. But it does not includes payments that can be treated as cost of goods sold.

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