Base erosion and anti-abuse tax

What is BEAT tax?

The base erosion and anti-abuse tax is a U.S. corporate minimum tax that limits large multinational corporations from reducing U.S. taxable income through significant deductible payments to related foreign entities.

BEAT functions as a backstop minimum tax for large multinational corporations. Its goal is to discourage profit shifting through deductible payments to foreign affiliates and ensure that companies generating substantial U.S. income pay at least a minimum level of U.S. tax. For most privately held businesses and middle-market companies, BEAT is not relevant because they do not meet the size thresholds.

Before BEAT was enacted, some multinational companies could shift profits out of the United States by paying foreign affiliates for things like interest on intercompany loans, royalties for intellectual property, certain service fees, rent, and other deductible payments. These deductions reduced U.S. taxable income, a practice known as base erosion.

What are base erosion payments?

Base erosion payments are certain deductible amounts paid or accrued to related foreign parties. Common examples include interest, royalties, certain service payments, and depreciation or amortization deductions related to property acquired from foreign affiliates. The related U.S. tax benefits from these payments are generally added back when calculating modified taxable income for BEAT purposes.

Who is subject to BEAT tax?

BEAT applies to a relatively small group of large multinational corporations. Most middle-market businesses, privately held companies, and firms without significant cross-border related-party payments are not subject to BEAT.

To be subject to BEAT, a company must generally meet all three of the following criteria:

1. Corporate status. The company generally must be a C corporation — including certain foreign corporations with effectively connected U.S. income.
2. Gross receipts threshold. The corporate group must have average annual gross receipts of at least $500 million over the preceding three tax years.
3. Base erosion percentage test. The company must have a base erosion percentage of 3% or higher. The percentage is 2% for certain banks and registered securities dealers. This is the proportion of total deductions attributable to payments made to related foreign parties— like interest, royalties, or service fees.

For example, a U.S. multinational corporation with $2 billion in average annual gross receipts, and significant royalty payments to a foreign subsidiary that create a 5% base erosion percentage would likely be subject to BEAT. By contrast, a domestic manufacturer with $200 million in annual revenue and no significant payments to foreign affiliates would not be subject to BEAT.

What is the BEAT tax rate?

For tax years beginning after 2025, the base erosion and anti-abuse tax rate is permanently set at 10.5% for general corporations, and 11.5% for banks and certain financial entities.

Did OBBBA change BEAT?

Yes. The key changes to BEAT under the One Big Beautiful Bill Act (OBBBA) include:

• Permanently fixed rate. The OBBBA permanently set the BEAT rate at 10.5%. This cancelled a steep, previously scheduled jump to 12.5% that was slated to begin in 2026 under the Tax Cuts and Jobs Act (TCJA).
• Credit treatment. The act permanently preserved favorable treatment for certain U.S. general business credits when calculating BEAT liability.
• Thresholds kept intact. The OBBBA maintained the existing $500 million gross receipts test and the 3% base erosion percentage threshold.

How is BEAT calculated?

BEAT is generally calculated in three steps:

1. Calculate modified taxable income (MTI) by adding certain deductible payments made to related foreign parties back to the corporation's taxable income.
2. Apply the BEAT rate to MTI to determine the tentative BEAT amount.
3. Compare the tentative BEAT amount to the corporation's regular tax liability. If the BEAT amount exceeds the regular tax liability — after certain adjustments — the difference is owed as base erosion and anti-abuse tax.

The formula is:

BEAT = (BEAT rate × modified taxable income) − adjusted regular tax liability

Essentially, BEAT recalculates taxable income as if certain deductible payments to foreign affiliates had not been deducted, applies a minimum tax rate to that income, and then compares the result to the corporation's regular U.S. tax liability.

Can you offset the BEAT tax?

Yes, companies may be able to reduce or minimize their BEAT liability, although BEAT generally cannot be eliminated through tax credits alone. Because BEAT is a minimum tax based on modified taxable income, the most effective strategies typically focus on reducing base erosion payments or restructuring transactions.

Common strategies include:

• Waiving deductions. The IRS allows taxpayers to waive deductions related to certain base erosion payments. By foregoing the deduction, the payment may no longer be treated as a base erosion payment for BEAT purposes.
• Recharacterizing transactions. In some cases, companies may be able to restructure intercompany arrangements so that certain amounts are treated as cost of goods sold (COGS) rather than deductible payments, which generally are not subject to BEAT add-backs.
• Utilizing tax credits. Certain business tax credits, including research and experimentation (R&E) credits, can help reduce BEAT exposure by increasing the corporation's adjusted regular tax liability. OBBBA permanently preserved favorable treatment for certain credits in the BEAT calculation.
• Reviewing transfer pricing arrangements. Reassessing intercompany loans, royalties, and service fees may reduce base erosion payments. Certain qualifying services may also be eligible for the Services Cost Method (SCM) exception, which can exclude portions of intercompany service charges from BEAT treatment.

Because the effectiveness of these strategies depends on a company's specific facts and structure, corporations subject to BEAT should carefully evaluate planning opportunities before year-end. In many cases, reducing or restructuring related-party payments is more effective than relying solely on tax credits to mitigate BEAT liability.

What is the difference between BEAT and CAMT?

The base erosion and anti-abuse tax and the corporate alternative minimum tax (CAMT) are separate minimum tax rules. BEAT focuses on deductible payments made to related foreign parties, while CAMT generally applies a minimum tax based on adjusted financial statement income for certain large corporations. A corporation may need to evaluate both independently.

What is included in BEAT compliance?

BEAT compliance involves identifying potential base erosion payments, calculating BEAT liability, maintaining supporting documentation, and reporting the tax to the IRS. For multinational corporations, compliance typically includes:

• Identifying base erosion payments made to related foreign parties, such as royalties, interest, certain service fees, and other deductible payments
• Calculating the base erosion percentage to determine whether the corporation meets the BEAT applicability threshold
• Computing modified taxable income and any resulting BEAT liability.
• Analyzing intercompany transactions and transfer pricing arrangements to properly classify payments and apply available exceptions
• Tracking tax credits and their impact on the BEAT calculation
• Maintaining documentation and audit trails supporting calculations, related-party relationships, and transaction classifications
• Filing IRS Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts, along with the corporation's federal income tax return
• Monitoring legislative and regulatory changes, including updates affecting BEAT rates, credits, and reporting requirements

Because BEAT calculations often rely on data from tax, accounting, legal, and transfer pricing teams, many multinational organizations use tax technology and automated data collection processes to help improve accuracy, consistency, and audit readiness.

What is a good international tax software platform for managing BEAT?

When evaluating an international tax software platform, businesses should look for capabilities such as:

• Automated BEAT calculations and threshold analysis
• BEAT applicability and base erosion percentage testing
• Identification and tracking of base erosion payments
• Integration with ERP and financial systems
• Transfer pricing and intercompany transaction data management
• Support for IRS Form 8991 preparation and reporting
• Support for NCTI, FDDEI, Subpart F income, and foreign tax credits
• Audit trails and reporting tools
• Scenario modeling and tax planning capabilities

Help tax teams streamline corporate income tax compliance with ONESOURCE Income Tax, including complex federal and international filings. Meanwhile, ONESOURCE International Tax Calculator supports modeling and calculations for BEAT, NCTI, FDDEI, Subpart F income, foreign tax credits, and other U.S. international tax provisions. Together, these solutions can help multinational businesses improve accuracy, reduce manual work, and manage BEAT-related tax obligations with greater confidence.

We last updated this information on 07/02/2026.