The Senate Introduced a Pragmatic and Geopolitically Savvy Inbound Base Erosion Rule

Abstract

The Base Erosion and Anti-Abuse Tax (BEAT) is a surprising and innovative part of the Senate’s proposed international tax reform package. The BEAT helps level the playing field between U.S.-headquartered and foreign-headquartered companies. It raises enough revenue so that the outbound minimum tax rate is probably lower than it would otherwise need to be given revenue constraints.

Both the House and Senate tax reform bills include significant rules to limit inbound base erosion. Therefore, the BEAT also functions as the Senate’s answer to section 4303 of the House Tax Cuts and Jobs bill. This article compares the BEAT with the House inbound base erosion proposal along various dimensions. It focuses in particular on issues associated with administrability and potential foreign responses. I conclude that the BEAT – unlike the House approach to inbound reform – represents a pragmatic, administrable, and geopolitically savvy policy that helps level the playing field between U.S. and foreign MNCs.

Keywords: inbound, tax reform, international, BEAT