26 U.S.C. § 59A — Tax on base erosion payments of taxpayers with substantial gross receipts

(a) Imposition of tax. This section adds a new tax, on top of any other tax already imposed, called the base erosion minimum tax amount, charged to each applicable taxpayer as defined in (e). (b) Base erosion minimum tax amount. The tax equals the amount by which 10.5 percent of the taxpayer's modified taxable income, 5 percent for tax years beginning in 2018, exceeds the taxpayer's regular tax liability, reduced by the credits it claims against that regular tax, except that the research credit, and up to 80 percent of certain other credits, the low-income housing, renewable electricity production, and energy investment credits, stay counted against the regular tax rather than reducing it further. For banks and registered securities dealers that are part of an affiliated group including such a bank or dealer, the 10.5 percent or 5 percent rate goes up by one extra percentage point. (c) Modified taxable income. This is the taxpayer's normal taxable income, but with two things added back in: any tax benefit from a base erosion payment, defined in (d), and the base-erosion share of any net-operating-loss deduction. A base erosion tax benefit includes the deduction for the payment itself, depreciation deductions on property bought with such a payment, certain insurance-premium reductions for reinsurance paid to a related foreign party, and reduced gross receipts from certain payments to expatriated companies. If tax was already withheld on a payment under section 871 or 881, and collected under section 1441 or 1442, that payment's tax benefit is left out of this calculation, subject to a further reduction under rules similar to section 163(j)(5)(B) as it existed before the Tax Cuts and Jobs Act. When a taxpayer's interest deduction is limited under section 163(j), the cut is treated as hitting unrelated-party interest first and related-party interest second. The base erosion percentage, used to test whether a taxpayer is applicable, is the taxpayer's total base-erosion tax benefits divided by its total deductions, plus certain reinsurance and expatriate items, leaving out net-operating-loss, dividends-received, and foreign-derived-income deductions, deductions for services excepted under (d)(5), and deductions for qualified derivative payments excepted under (h). (d) Base erosion payment. This means any deductible amount a taxpayer pays or owes to a related foreign person. It also includes payments to buy depreciable property from a related foreign person, reinsurance premiums paid to a related foreign person that reduce the taxpayer's own insurance income, and payments to certain expatriated foreign companies, meaning surrogate foreign corporations that became such after November 9, 2017, or their affiliates, that reduce the taxpayer's gross receipts. It does not include payments for services that qualify for the services cost method under section 482 and are billed at cost with no markup. (e) Applicable taxpayer. This tax applies to a corporation, other than an S corporation, a regulated investment company, or a real estate investment trust, that averaged at least $500,000,000 in gross receipts over the prior three years, and has a base erosion percentage, from (c), of 3 percent or more, 2 percent for the banks and dealers described in (b)(2)(B). For a foreign corporation, only gross receipts connected to a U.S. trade or business count, unless a U.S. affiliate's receipts are combined in under the aggregation rule below. Businesses treated as one employer under section 52 are combined for these tests, with one adjustment disregarding a foreign-corporation exception. (f) Foreign person. This term takes its meaning from section 6038A(c)(3). (g) Related party. A related party includes anyone owning at least 25 percent of the taxpayer's voting stock or value, called a 25-percent owner, anyone related to the taxpayer or that owner under the related-party rules in section 267(b) or 707(b)(1), and anyone related under section 482's related-party rules. Stock-attribution rules in section 318 apply to figure this out, with two changes: a 10 percent ownership threshold replaces the usual 50 percent threshold in one place, and stock owned by a non-U.S. person is not attributed to make a U.S. person look like an owner. (h) Exception for certain payments made in the ordinary course of trade or business. Payments made under a qualified derivative payment generally are not treated as base erosion payments. A payment qualifies if the taxpayer marks the derivative to market each year, treats the resulting gain or loss as ordinary income, and treats all related income, deduction, gain, or loss as ordinary too, and only if the taxpayer reports enough detail about it under section 6038A(b)(2). This exception does not apply if the payment would have counted as a base erosion payment anyway had it not been made through a derivative, such as disguised interest, royalty, or service payments, or to the non-derivative part of a contract that mixes derivative and non-derivative components. A derivative is broadly defined as a contract whose value, or a payment under it, depends on stock, debt, an actively traded commodity, currency, or a rate, price, amount, index, formula, or algorithm; American depositary receipts are treated as the underlying foreign stock; but insurance, annuity, and endowment contracts issued by regulated insurers are excluded. (i) Regulations. The Secretary must issue regulations or other guidance needed to carry out this section, including rules to stop taxpayers from avoiding it, for example through unrelated persons, conduit transactions, or other intermediaries, or through transactions designed to disguise covered payments as not subject to this section, or to substitute non-covered payments for covered ones, and rules to prevent abuse of the derivative-payment exception in (h).