Base Erosion and Anti-Abuse Tax Rules for Qualified Derivative Payments on Securities Lending Transactions
Published Date: 1/14/2025
Proposed Rule
Summary
Big companies that lend securities and pay foreign related parties will see new rules on how certain payments are counted and reported for tax purposes. These changes aim to stop companies from shrinking their U.S. tax bills unfairly. Comments on the proposed rules are open until April 14, 2025, so affected companies should pay attention and get ready!
Analyzed Economic Effects
5 provisions identified: 3 benefits, 1 costs, 1 mixed.
Mark-to-Market Gains/Losses Excluded from QDPs
If your corporation engages in intercompany securities lending, mark-to-market gains and losses on the securities leg of those transactions are not treated as qualified derivative payments (QDPs) and are not required to be included in QDP reporting or netted with QDPs. The rule applies to securities lending transactions as defined in Secs. 1.861-2(a)(7) and 1.861-3(a)(6) and is proposed to apply to taxable years beginning on or after January 10, 2025.
Substitute Payments Still Reportable QDPs
Substitute payments and other payments made to foreign related parties under a securities lending transaction (other than cash-collateral interest) remain qualified derivative payments and must be reported as QDPs (for example, on Form 8991). Those amounts must be taken into account consistently when determining base erosion payments.
Alternative Allocation When Recipient Unknown
If a taxpayer cannot identify which substitute payments or other payments went to foreign related parties, the proposed rule lets the taxpayer use an alternative method that treats substitute payments as paid first to foreign related parties (but not more than the total received by foreign related parties). Specific identification is allowed when recipients can be identified, and the 'lottery' method of Sec. 1.6045-2(f)(2)(ii) is not applicable.
Key Dates: 2025 Change and 2027 Reporting Start
The proposed securities-lending QDP rules (mark-to-market exclusion and allocation rules) are proposed to apply to taxable years beginning on or after January 10, 2025. The QDP reporting rule in Sec. 1.6038A-2(b)(7)(ix) would apply to payments made in taxable years beginning on or after January 1, 2027. Written comments on the proposed rules are due by April 14, 2025.
Rule Targets Large Corporations (>$500M)
These proposed regulations apply to corporations that generally have average annual gross receipts of at least $500 million and that make payments to foreign related parties. The IRS certified that the proposed regulations will not have a significant economic impact on a substantial number of small entities.
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Key Dates
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