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.

Summary

Excludes certain payments to related foreign parties from the base erosion tax when both the foreign related party and the payment face an effective foreign tax rate of at least 15%, and lets taxpayers measure that effective rate using applicable financial statements with Treasury adjustments. It defines which foreign taxes count, requires Treasury to issue rules to calculate the rate and to include anti-abuse measures, and applies to taxable years beginning after enactment.

• Creates an exception to the base erosion payment definition when both the foreign related party and the payment are subject to an effective foreign tax rate of at least 15%.
• Permits taxpayers to use applicable financial statements to establish the foreign effective tax rate, with Treasury-prescribed adjustments.
• Defines foreign income taxes to include income, war profits, and excess profits taxes paid or accrued to foreign countries or U.S. possessions.
• Requires Treasury to issue regulations that set procedures for calculating the effective rate and to include anti-abuse rules, including recharacterization authority.
• Effective for taxable years beginning after enactment.
• Narrows the scope of certain U.S. anti-base-erosion rules for multinational groups that can demonstrate a minimum foreign tax burden.
• Treasury regulation authority means the practical outcome will depend on future rulemaking and enforcement guidance.
• The carve-out is conditional and can be denied if Treasury determines the arrangement is abusive.