How the BEAT Regulation Exposes Intercompany Reporting Flaws

The base erosion and anti-abuse tax (BEAT) was intended to replace some complexities of the federal corporate alternative minimum tax. But in reality, this regulation makes it more complex for multinational companies to calculate the new liabilities related to this still-evolving regulation.

US-based organizations with average annual gross receipts exceeding $500 million over the prior three-year period may be subject to BEAT.  It can be difficult for these organizations to determine which payments are tax worthy, and therefore difficult to figure out strategies for minimizing those taxes.

For instance, says BlackLine Value Engineer Katie Thayer, while BEAT applies to trade payments between US nationals and foreign subsidiaries, it also applies to non-trade payments. And that’s where BEAT gets tricky.

“ERP systems are generally good at documenting trade transactions,” she says. “These mainly consist of direct payments for goods to supplier subsidies.

“But ERPs are not effective at documenting non-trade transactions with subsidiaries, such as R&D, legal, training and other costs. These types of transactions can get very complicated.

“You’ve got to get into the transaction-level detail to see how some of these charges apply.”

The problem is that with many companies, the necessary non-trade transaction details—markups, withholding taxes, VAT taxes, or whether a transfer pricing agreement was in effect—are lost in emails, legal documents, or spreadsheets.

“The details are somewhere,” Thayer says, “but they’re not always easy to find. Also, for companies with 20 or 50 or more ERP systems, it’s next to impossible to aggregate everything up into one reliable data set.”

That’s why BlackLine uses what Thayer calls a holistic approach to end-to-end intercompany transactions.

“We track each transaction from beginning to end, from initiation through to settlement and reporting,” she says. “And we track all trade and non-trade transactions, pulling information out of spreadsheets, ERPs, and other sources.”

Once the BlackLine Intercompany Hub is set up, companies no longer have to initiate transactions by email, an inefficient practice that can result in lost information and risk regulation penalties.

“When you can see the intercompany detail in one place, you can then determine exactly which transactions are relevant to the BEAT calculation, and which aren’t.

“This can save a lot of time that’s wasted by chasing down paper trails, and can potentially avoid the risk of significant penalties.”

Read our latest issue of BlackLine Quarterly to learn more about how to increase the quality of and trust in your data.