The One Big Beautiful Bill Act redefines BEAT: What multinationals should know

Tax reform could mean significant changes for multinationals

The U.S. House of Representatives on May 22, 2025, passed the One Big Beautiful Bill Act (OBBBA)—a sweeping legislative package poised to reshape the international tax landscape. Among its headline provisions is a bold expansion of the base erosion and anti-abuse tax (BEAT), a move that could pull a much broader range of U.S. corporations into its net.

The OBBBA is under consideration in the Senate, where Republican lawmakers are expected to propose revisions to certain parts of the bill as the budget reconciliation process continues.

BEAT 101: What it is and whom it hits

BEAT, enacted under section 59A of the Internal Revenue Code, was designed as a minimum tax targeting large U.S. and foreign corporations with effectively connected income (ECI) that make deductible payments to related foreign parties.

Unlike traditional withholding taxes, which are imposed on the recipient, BEAT is levied on the paying corporation and reported on its U.S. tax return. It functions as a gross-basis tax on payments that might otherwise escape U.S. taxation—such as those shielded by treaty exemptions.

Currently, BEAT applies to corporations with at least $500 million in average gross receipts over the prior three years and a base erosion percentage of 3% or more (2% for banks and certain financial institutions). The tax rate stands at 10%, but it is scheduled to rise to 12.5% in 2026 unless Congress intervenes.

Base erosion payments include interest, royalties, rents and service fees paid to related foreign parties, although amounts included in cost of goods sold are excluded. Certain exceptions apply, including payments that qualify under the Services Cost Method (SCM), typically low-margin internal services.

Notably, BEAT liability cannot be offset by the foreign tax credit or the section 41 research credit, which can significantly increase a corporation’s effective tax burden.

But the OBBB proposes to take BEAT to a whole new level.

‘Super BEAT’: OBBB’s game-changing rewrite

At the heart of the proposed changes is new section 899, which would supercharge BEAT into what some are calling Super BEAT.

This provision is aimed squarely at foreign jurisdictions that impose discriminatory taxes on U.S. businesses—such as digital services taxes (DST), diverted profits taxes (DPT) or the Pillar Two undertaxed profits rule (UTPR).

Under section 899, BEAT would no longer be limited to large multinationals. Instead, it would apply to nearly any U.S. or foreign corporation with ECI that is more than 50% owned by “applicable persons”—a broad category that includes foreign individuals, governments, entities and trusts from countries with such tax regimes.

Crucially, corporations subject to section 899 would face BEAT regardless of their size or base erosion percentage. The proposed rules would also eliminate key exceptions: The SCM exception would no longer apply, nor would the exclusion for payments already subject to U.S. withholding tax. Even capitalized costs—such as those for long-term assets—could be treated as base-eroding payments if they would have been treated that way had they been expensed.

For companies outside the scope of section 899, the OBBBA offers some relief: It would lock in the current 10.1% BEAT rate and preserve the ability to offset BEAT liability with research and development and other general business credits, which were otherwise set to expire after 2025.

Hidden BEAT impacts in the OBBB

The OBBBA also includes provisions that could indirectly affect BEAT exposure. Section 174A would temporarily suspend the mandatory capitalization of domestic research and experimental (R&E) expenditures, allowing immediate expensing or amortization over 60 months for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030. This change could lower a company’s base erosion percentage and reduce BEAT liability.

Additionally, the OBBBA would revise the calculation of adjusted taxable income under section 163(j) by excluding depreciation and amortization, potentially increasing deductible interest expense and altering the BEAT computation when interest is paid to foreign affiliates.

Planning for a Super BEAT world

Looking ahead, if section 899 becomes law, BEAT would no longer be a niche concern for a handful of large corporations—it would become a central feature of the U.S. international tax regime.

Companies that previously flew under the radar due to size thresholds, or relied on exceptions like the SCM, will need to reassess their exposure. Strategic tax planning will be essential to navigate the expanded rules and mitigate potential liabilities under this new, more aggressive BEAT framework.