United States: The Senate's New Base Erosion Tax: Highlights for Renewable Energy


On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act. The Senate Bill includes the base erosion and anti-abuse tax, a new tax intended to apply to companies that significantly reduce their US tax liability by making cross-border payments to affiliates. Given its potential to disrupt the financing of renewable energy projects, taxpayers in the renewable energy sector have been paying close attention to its developments.

In Depth

The Senate approved its version of the Tax Cuts and Jobs Act (Senate Bill) on December 2, 2017. The Senate Bill generally leaves the base erosion and anti-abuse tax (BEAT) unchanged from earlier versions of the Senate Bill. Taxpayers in the renewable energy sector have been paying particular attention to the BEAT, given its potential to disrupt the financing of renewable energy projects.

The House has approved a motion to go to a conference committee to reconcile the House's tax reform bill with the Senate Bill, and the Senate is expected to consider a similar motion this week. While important policy differences await resolution, it appears that some form of tax reform legislation will likely be enacted before the end of 2017.

In brief, the BEAT is a new tax intended to apply to companies that significantly reduce their US tax liability by making cross-border payments to affiliates. If the cross-border payments reduce a company's US tax liability to less than 10 percent of its US taxable income (as discussed in more detail below), the BEAT applies. In calculating the company's US tax liability, certain credits, such as the investment tax credit pursuant to Section 48 (ITC) and the production tax credit pursuant to Section 45 (PTC), are taken into account, making it more likely that such a company is subject to the BEAT. Multinational tax equity investors reducing their US tax liability from cross-border affiliate payments may therefore find that investments in ITC and PTC eligible projects after enactment of the BEAT are much less attractive.

Taxpayers Subject to the BEAT

  • Domestic corporations (other than regulated investment companies, real estate investment trusts or S corporations) that are part of a group with at least $500 million of annual gross receipts (averaged over a 3-taxable-year period) and which have a "base erosion percentage" of 4 percent or higher for the taxable year: 
    • In simplified terms, large multinational corporations that make payments to foreign affiliates resulting in deductions equal to 4 percent or more of their total deductions are potentially subject to the BEAT.
    • The "base erosion percentage" generally equals the aggregate amount of "base erosion tax benefits" (see below) of the taxpayer for the taxable year, divided by the aggregate amount of the deductions allowable to the taxpayer for the taxable year.
  • Foreign corporations engaged in a US trade or business that meet the $500 million gross receipts and "base erosion percentage" tests (described above): 
    • However, for purposes of the "gross receipts" test, generally only gross receipts, which are taken into account in determining effectively connected income, are taken into account. 
General Summary of the BEAT

The BEAT is a tax equal to the taxpayer's "base erosion minimum tax amount" for the taxable year.

  • In simplified terms, this amount is determined by a formula that compares 10 percent of the taxpayer's income without taking deductible payments to foreign affiliates into account with the taxpayer's regular tax liability (taking such deductions into account and reducing by certain credits, as discussed below). If the 10 percent amount is larger, then the BEAT is owed.

The "base erosion minimum tax amount" equals the excess (if any) of (A) 10 percent of the taxpayer's "modified taxable income" for a taxable year over (B) the taxpayer's regular tax liability reduced (but not less than zero) by tax credits (other than the R&D credit) allowed in that year.

  • For taxable years after 2025, the percentage in (A) increases to 12.5 percent, and the research & development credit is included in (B).
  • In the case of taxpayers that are members of a US affiliated group which includes a bank or registered securities dealer, the percentage in (A) is increased to 11 percent (13.5 percent for taxable years after 2025).
"Modified taxable income" means the taxpayer's taxable income for the taxable year, determined without regard to (A) any "base erosion tax benefit" with respect to any "base erosion payment" or (B) the base erosion percentage of any net operating loss deduction allowed under Section 172 for the taxable year. 
  • A "base erosion tax benefit" generally means any deduction that is allowed with respect to any "base erosion payment," such as depreciation and amortization deductions.
  • A "base erosion payment" generally means any amount paid or accrued to foreign persons that are related parties for which a deduction is allowed, as well as a payment to a related foreign person to acquire depreciable or amortizable property.
  • Base erosion tax benefits are disregarded if withholding tax under Sections 1441 or 1442 is applied to the base erosion payment, modified to the extent that reduced rates of withholding are applied under an applicable income tax treaty.
  • "Related party" generally means any 25 percent owner of the taxpayer, as well as any person related to the taxpayer or any 25 percent owner of the taxpayer. 
  • Special rules apply for payments to expatriated entities, certain payments for services and "qualified derivative payments."
  • "Qualified derivative payments" generally means payments made by a taxpayer pursuant to derivatives that the taxpayer marks to market and on which the taxpayer recognizes ordinary income. 

Concerns for Renewable Energy

  • Tax equity investors—such as large multinational companies and banks—may need to consider the potential application of the BEAT.
  • The BEAT could affect investors' decisions with respect to future ITC and PTC projects. It could also have an impact on the value of existing projects that will continue to generate PTCs after the enactment of the BEAT.
  • Because the BEAT determination is made annually and involves complex calculations, potential tax equity investors may not know whether they will be entitled to the full benefit of PTCs and ITCs in a given year.

Effective Date

If enacted, the BEAT would apply with respect to base erosion payments paid or accrued in taxable years beginning after December 31, 2017.

The Senate's New Base Erosion Tax: Highlights for Renewable Energy

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Shearman & Sterling LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Shearman & Sterling LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions