The One Big Beautiful Bill Act became law on July 4, 2025. RSM's Washington National Tax team continues to provide focused tax insights to help you move forward with confidence.
The One Big Beautiful Bill Act (OBBBA) is poised to shake up international tax. Passed in mid-May by the U.S. House of Representatives, the bill proposes to transform the base erosion and anti-abuse tax (BEAT) into “Super BEAT,” via proposed section 899—vastly expanding its reach to include many U.S. and foreign corporations, regardless of size or prior exemptions.
The proposal scraps key exceptions, raises the BEAT rate and broadens what counts as a base erosion payment. Coupled with changes to research and experimentation (R&E) expensing and interest deductibility, the impact could be far-reaching.
If enacted, Super BEAT would not just tweak the rules—it would redefine the game. However, Republican congressional leaders on June 26 announced they would remove the section 899 proposal from the broad taxation-and-spending package after the secretary of the U.S. Department of the Treasury announced a tax agreement with G7 countries.
As Congress finalizes legislation, multinationals should assess exposure and prepare for what could come next.
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, 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.
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.
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.
Looking ahead, if section 899 were to become 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, would need to reassess their exposure. Strategic tax planning would be essential to navigate the expanded rules and mitigate potential liabilities under a new, more aggressive BEAT framework.
While the U.S. Senate worked to finalize its version of the taxation-and-spending bill, Treasury Secretary Scott Bessent on June 26 announced a tax agreement with G7 countries, about which he did not disclose details.
As a result of that agreement, he recommended that Congress remove the proposed section 899 from its legislation. Republican congressional leaders subsequently announced they would heed that recommendation.
Republican leaders are aiming to enact the taxation-and-spending bill by July Fourth.
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