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Abstract
To align the participants’ IDC shares with their RAB shares, the Irish participant makes a CST payment of $150x to the U.S. participant. Because the $100x payment to the Indian affiliate is deductible to the U.S. entity, it is potentially subject to BEAT. [...]the payment is a deductible IDC and thus falls under Treas. Reg. § 1.482-7(j)(3)(i), which provides that it is deemed to be reduced pro rata by the $150x CST payment received from Ireland. Since the $100x payment to India represents one third of the U.S. participant’s deductible IDCs, one third of the CST payment, or $50x, is available to offset the payment, leaving the U.S. entity with a deemed $50x payment to India that may be subject to BEAT. [...]notwithstanding Treasury’s reluctance to commit to an interpretation of Treas. Reg. § 1.482-7(j)(3)(i), that provision should continue to permit netting in appropriate cases, although care must be taken to comply with applicable regulations, and taxpayers should be alert for future updates from the Treasury Department and IRS related to the interaction of the QCSA netting provisions and BEAT.