# What This Bill Does

This bill creates a special exception to a tax rule that prevents large companies from shifting profits overseas to avoid U.S. taxes. Right now, the IRS has a rule called the "base erosion and anti-abuse tax" (BEAT) that penalizes companies when they make payments to foreign subsidiaries or related companies as a way to reduce their U.S. taxable income. Think of it like this: a U.S. company pays money to its foreign branch, which reduces what it owes in U.S. taxes. The BEAT rule was designed to stop this practice.

This bill punches a hole in that rule. It says that if a company can prove the foreign company receiving the payment is already paying at least 15 percent in taxes to another country, and the payment itself is taxed at 15 percent or higher in that foreign country, then the payment doesn't count as a "base erosion payment" anymore. In other words, the company gets a pass from the BEAT penalty. The company would need to show the IRS financial records proving these tax rates are actually being paid.

**Who this affects:** Primarily large multinational corporations that do business in multiple countries and have subsidiaries or related companies abroad. Small businesses and individual taxpayers won't be impacted. The bill essentially makes it easier for these large companies to move money to foreign operations without triggering the anti-abuse tax, as long as those foreign operations are paying a decent amount in foreign taxes.

**The practical effect:** This could reduce the amount of U.S. tax revenue collected from large corporations, since more of their payments to foreign entities would be allowed without penalty. It could also incentivize companies to structure their foreign operations in countries with at least 15 percent tax rates to take advantage of this exception.

To amend the Internal Revenue Code of 1986 to provide that certain payments to foreign related parties subject to sufficient foreign tax are not treated as base erosion payments.