BEAT tax: What is the base erosion and anti-abuse tax in 2026?
The BEAT tax – formally the base erosion and anti-abuse tax – is a US corporate minimum tax that targets large C corporations making deductible payments to foreign related parties.
It applies only to corporations with average annual gross receipts of $500 million or more over the prior three tax years, so most small and mid-sized US businesses (including expat-owned foreign companies) fall well outside it.
For 2025 tax year returns filed during the 2026 filing season, the rate is 10%, or 11% for banks and securities dealers. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, sets a permanent rate of 10.5% (11.5% for banks) for tax years beginning after December 31, 2025.
BEAT tax key facts (2025 tax year)
- Legal basis: IRC Section 59A, enacted by the Tax Cuts and Jobs Act (TCJA) in 2017
- Applicable taxpayers: C corporations with $500 million or more in average annual gross receipts over the prior three tax years
- Base erosion percentage threshold: 3% of total deductions (2% for banks and securities dealers)
- Rate for 2025 tax year: 10%; 11% for banks and securities dealers
- Permanent rate from 2026 onward: 10.5%; 11.5% for banks – set by OBBBA, replacing the 12.5% originally scheduled by TCJA
- Section 899 “super BEAT”: proposed but not enacted
- Excluded payments: cost of goods sold (COGS), services at cost under the services cost method (SCM) exception
- 2018 filing data: 479 corporations paid $1.8 billion in BEAT, with manufacturing accounting for $906.2 million
Who must pay the BEAT tax?
A corporation is subject to BEAT if it meets three tests: it is a C corporation (not a REIT, RIC, or S corporation), its average annual gross receipts over the prior three tax years reach $500 million, and its base erosion percentage for the year is at least 3% – 2% for banks and securities dealers. All three tests must be satisfied in the same year.
The following three conditions must all be met:
- The taxpayer is a C corporation other than a REIT, RIC, or S corporation.
- Average annual gross receipts for the prior three tax years are $500 million or more, tested at the aggregate group level.
- The base erosion percentage for the year is 3% or higher – or 2% or higher for banks and registered securities dealers.
The relevant deductible outflows are called base erosion payments – amounts paid or accrued to a foreign related party during the year, including deductible interest, royalties, service fees, and depreciation or amortization on property acquired from a foreign related party. They drive the base erosion percentage: the ratio of base erosion payments to total deductions for the year.
Groups that already deal with the current inclusion regime for CFC earnings under Subpart F income rules will recognize the same related-party framework – BEAT operates independently at the US corporate level.
Aggregate group ownership rules
The $500 million receipts test applies on an aggregate basis across all members of a corporation’s BEAT aggregate group under IRC §59A(e)(3). Affiliated corporations combine receipts, so a group of individually smaller entities can cross the BEAT aggregate group ownership threshold collectively even when no single member would.
The aggregation rules are similar in concept to CFC ownership rules but follow the specific ownership rules prescribed for BEAT.
A US corporation that owns 60% of two foreign subsidiaries and 40% of a third – with a related party owning the balance – should model receipts across the full group before concluding it is outside BEAT.
How the BEAT tax is calculated
The BEAT calculation for the 2025 tax year equals the excess, if any, of 10% of modified taxable income over the corporation’s regular tax liability adjusted for certain credits. If regular tax already exceeds the minimum, no BEAT is owed for the year.
Modified taxable income starts with the corporation’s regular taxable income and adds back:
- deductible amounts paid or accrued to foreign related parties, and
- the base erosion percentage of any net operating loss deduction claimed.
The BEAT tax formula is:
BEAT = (10% × Modified Taxable Income) − Regular Tax Liability (adjusted)
A liability arises only when the minimum tax figure exceeds the regular tax. For corporations paying substantial regular tax on high-margin US operations, BEAT often calculates to zero even when base erosion payments are significant.
The core mechanics of the base erosion tax have not changed under OBBBA – only the rate.
Step-by-step BEAT tax calculation example
A BEAT tax calculation example for a corporation with $500 million in taxable income and $50 million in deductible payments to a foreign related party runs as follows:
- Regular taxable income: $500 million
- Add-back of deductible payments to foreign related parties: $50 million
- Modified taxable income: $550 million
- Minimum tax at 10%: $55 million
If the corporation’s regular tax liability is $105 million, no BEAT is owed – regular tax already exceeds the $55 million floor. If regular tax is $50 million, BEAT adds $5 million ($55M – $50M) to the total.
For a real-data anchor, IRS tax year 2018 statistics on Form 8991 filers show that of nearly 6,000 forms filed, only 479 corporations owed BEAT after the regular-tax comparison, paying $1.8 billion combined. Manufacturing firms accounted for $906.2 million – nearly half of that total.
BEAT tax rate by year
The BEAT tax rate was 5% in its first year (2018) and rose to 10% from 2019 through 2025. For 2025 tax year returns filed in the 2026 filing season, the applicable rate remains 10%, or 11% for banks and securities dealers.
The BEAT tax rate for 2026 is permanently fixed at 10.5% – or 11.5% for banks and securities dealers – under OBBBA. This replaces the 12.5% and 13.5% rates that TCJA had originally scheduled.
The BEAT rate has changed twice since 2018 – from 5% to 10% in 2019, and to a permanent 10.5% for tax years beginning after December 31, 2025 – replacing the 12.5% rate originally scheduled by TCJA.
| Period | BEAT rate | Banks and securities dealers |
|---|---|---|
| 2018 | 5% | 6% |
| 2019 – 2025 | 10% | 11% |
| 2026 onward | 10.5% (permanent) | 11.5% (permanent) |
BEAT tax changes under OBBBA (2025)
President Trump signed the One Big Beautiful Bill Act into law on July 4, 2025.
The Trump base erosion provisions in OBBBA permanently cap the BEAT rate at 10.5% – or 11.5% for banks and securities dealers – for tax years beginning after December 31, 2025. They also drop the proposed Section 899 rate escalation and preserve tax credit offsets against BEAT liability.
OBBBA introduced three changes to the BEAT regime, all effective for tax years beginning after December 31, 2025:
- Rate permanently set at 10.5% (11.5% for banks and securities dealers), rather than the 12.5% and 13.5% originally scheduled by TCJA.
- Section 899, sometimes called the super BEAT tax, was dropped from the final bill after G7 and OECD negotiations. As originally drafted, it would have imposed escalating rate increases on corporations from countries applying undertaxed-profits rules to US-parented groups.
- Tax credit offsets against BEAT liability preserved permanently – earlier drafts had contemplated phasing them down.
This BEAT tax reform is the most substantial change to the regime since TCJA created it in 2017.
The permanent 10.5% cap was confirmed in the final signed text of the One Big Beautiful Bill Act, and Section 899 was removed after concessions tied to the G7 agreement excluding US-parented groups from the undertaxed-profits rule.
BEAT vs. GILTI/NCTI vs. Corporate AMT vs. Pillar Two
BEAT, GILTI (renamed NCTI for tax years beginning after December 31, 2025), Corporate AMT, and Pillar Two are four distinct minimum tax regimes. Each targets a different type of profit shifting, and more than one can apply to the same corporation in the same tax year.
For the 2025 tax year, the CFC current-inclusion regime is still called GILTI under IRC §951A. For tax years beginning after December 31, 2025, it becomes NCTI – Net CFC Tested Income – under OBBBA, with a broader base after removal of the QBAI carve-out.
BEAT taxes deductible payments a US corporation makes to foreign related parties, while GILTI taxes the current-year income of CFCs owned by US shareholders – the two regimes can stack on the same group in the same year.
| Regime | What it targets | 2025 tax year rate | Who it affects | Threshold |
|---|---|---|---|---|
| BEAT | Deductible payments to foreign related parties | 10% (11% banks) | Large C corporations | $500M+ average gross receipts |
| GILTI (renamed NCTI in 2026) | Current CFC tested income | ~10.5% effective | US shareholders of CFCs (10%+ ownership) | Ownership-based, no receipts threshold |
| Corporate AMT (CAMT) | 15% floor on adjusted financial statement income | 15% | Very large corporations by book income | $1B+ average book income |
| Pillar Two | 15% global minimum tax on multinational groups | 15% | Multinational groups | €750M+ consolidated revenue |
NOTE! For tax year 2025, the effective US tax on GILTI generally approximates 10.5% before the impact of foreign tax credits and other limitations, although the actual rate varies depending on a corporation’s facts and available deductions and credits.
The US has not enacted Pillar Two domestically, though it affects US multinationals operating in jurisdictions that have. Corporate AMT is calculated and reported on Form 4626.
For the full mechanics of the CFC inclusion regime as it moves from GILTI to NCTI (Net CFC Tested Income) for 2026, see our dedicated guide.
BEAT tax and US owners of foreign businesses
US expats and expat-owned businesses rarely trigger BEAT directly. The $500 million gross receipts threshold applies only to large C corporations, so a US shareholder running a foreign business of typical size sits well below it.
BEAT usually enters the picture for smaller US-owned foreign operations in one of two indirect ways: through a US-parented group at the top of the ownership chain, or through a transaction with a BEAT-applicable US corporation that alters how deductible cross-border payments are structured.
The following three scenarios most commonly bring US-owned foreign businesses into contact with BEAT-related planning:
- A US corporation with foreign affiliates approaches the $500 million threshold through group aggregation, so the aggregation rules pull an otherwise sub-threshold entity into scope.
- A US parent pays management fees or royalties to a foreign subsidiary owned by a US expat, and the deductible payments count toward the parent’s base erosion percentage.
- A US-based group restructures its cross-border payments to qualify for the COGS or SCM exception, changing the tax character of an otherwise deductible outflow.
US shareholders of foreign corporations should also understand how BEAT fits alongside the Section 965 transition tax and ongoing Form 5471 filing requirements.
Form 5471 often provides information relevant to multinational ownership structures, while BEAT aggregation is determined under the ownership rules in IRC Section 59A.
Exceptions and planning strategies
Payments qualifying for the cost of goods sold (COGS) exclusion or the services cost method (SCM) exception are not treated as base erosion payments. These two carve-outs are the primary planning levers available to corporations within the BEAT regime.
The COGS exclusion removes amounts capitalized into inventory from the base erosion payment calculation entirely.
The SCM exception, defined in Treasury Regulations under §1.482-9, permits certain low-margin routine services provided by a foreign related party at cost to be excluded – provided the services qualify under the applicable eligibility requirements and do not fall within excluded categories of services.
Bottom line
BEAT is a large-corporation minimum tax. For 2025 tax year returns filed during the 2026 filing season, it applies only to C corporations with $500 million or more in average annual gross receipts over the prior three years, at a 10% rate (11% for banks and securities dealers).
Most US expats and expat-owned businesses fall well outside it, but US shareholders of CFCs owned by BEAT-applicable groups should understand where the regime touches their filings.
BEAT tax – what to remember for 2025 returns:
- Applies only to C corporations with $500M+ average gross receipts.
- 2025 tax year rate: 10%, or 11% for banks and securities dealers.
- Permanent 10.5% / 11.5% rate begins with tax years after December 31, 2025, under OBBBA.
- Section 899 was proposed but not enacted.
- COGS and SCM exceptions remain the primary planning levers.
- Legal basis: IRC Section 59A.
FAQ
BEAT is a US minimum tax on large C corporations that make substantial deductible payments – interest, royalties, service fees – to foreign related parties. It applies only to corporations with $500 million or more in average annual gross receipts over three years, so the vast majority of US businesses fall outside it.
For 2025 tax year returns filed in the 2026 filing season, the BEAT rate is 10%, or 11% for banks and securities dealers. Under OBBBA, the rate becomes a permanent 10.5% (11.5% for banks) for tax years beginning after December 31, 2025.
REITs, RICs, S corporations, and any corporation below the $500 million average gross receipts threshold are exempt. Corporations that meet the receipts test but whose base erosion percentage is below 3% (2% for banks) also fall outside the regime for that year.
BEAT taxes deductible payments a US corporation makes to foreign related parties. GILTI (renamed NCTI for tax years beginning after December 31, 2025) taxes the current-year tested income of a US shareholder’s controlled foreign corporations. Both can apply to the same corporate group in the same year, on different transactions.
No. S corporations, along with REITs and RICs, are excluded from BEAT by statute. Only C corporations meeting the receipts and base erosion percentage tests fall within the regime.
The base erosion percentage is the ratio of a corporation’s base erosion payments to its total allowable deductions for the year. A corporation meets the BEAT threshold when this ratio reaches 3% – 2% for banks and registered securities dealers.
Yes. OBBBA set the BEAT rate permanently at 10.5% (11.5% for banks) for tax years beginning after December 31, 2025, replacing the 12.5% and 13.5% rates TCJA had scheduled. For 2025 tax year returns filed in the 2026 filing season, the pre-OBBBA 10% rate still applies.
Section 899 was a proposal in earlier drafts of OBBBA that would have imposed escalating rate increases on corporations from countries applying undertaxed-profits rules to US-parented groups. It was sometimes called the “super BEAT.” The provision was dropped from the final bill signed on July 4, 2025, following G7 and OECD negotiations, and is not in force.
The services cost method exception excludes from the base erosion payment definition certain low-margin routine services provided by a foreign related party at cost. To qualify, the services must meet the eligibility requirements of Treasury Regulations §1.482-9 and must not fall within any excluded category of services.
Under OBBBA, the favorable treatment of the research credit and the applicable portion of certain Section 38 business credits is preserved permanently for purposes of computing BEAT. The interaction is governed by the Form 8991 rules and should be modeled carefully.
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