Entity Setup
Entity Setup Case Study: Planning for BEAT & Securities Lending Rules in AmalgamCorp’s International Structure
How a large company doing securities lending to foreign-related parties should adjust its structure and reporting under recently enacted BEAT rules.
By NomadicTax Research Team • 5-8 min read • April 8, 2026
## BEAT Rules Refresher: What Just Got Finalized
Under Internal Revenue Code § 59A, large corporations with substantial gross receipts and foreign-related payments must comply with the Base Erosion and Anti-Abuse Tax (BEAT). Final regulations entered effect **December 17, 2025** addressing how **qualified derivative payments (QDPs)** in securities lending transactions are accounted for and reported. Mark-to-market gains/losses may be excluded in certain situations if specific identification is possible. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-04.pdf?utm_source=openai))
## Entity Case Study: AmalgamCorp
**Scenario:** AmalgamCorp is a U.S.-incorporated investment firm. It borrows securities from a foreign-related party under a lending agreement. It has $800 million in gross receipts and is subject to BEAT.
### Problem Before Final Regulations
Without clear rules, AmalgamCorp would have to include all payments tied to the securities lending transaction—borrow fees, substitute payments, even losses/gains—in calculating the base erosion percentage. High exposure and possibly higher BEAT tax liability. No exclusion for certain mark-to-market losses unless specific identification was possible. ([irs.gov](https://www.irs.gov/irb/2026-04_IRB?utm_source=openai))
### With New Final Rule Adjustments
Under the updated regulations:
- AmalgamCorp may use **specific identification methods** to exclude certain payments or gains/losses to foreign related parties—if they can identify the recipient (or payor) clearly. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-04.pdf?utm_source=openai))
- If unable, fallback alternative method: treating some payments as paid first to foreign related parties—but not exceeding total payments foreign related parties receive. ■ reduces risk. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-04.pdf?utm_source=openai))
## Setting Up the Structure for Success
- Establish accounting systems that **track substitute payments**, borrow fees, and securities lending agreements with foreign related parties separately—identifying recipients/payors.
- Use legal agreements and operational documents stating when and to whom each payment flows, so identification is feasible.
- For entities with global operations, segregate revenues and costs for securities lending to foreign related parties to make reporting clean.
- Consult with tax advisors to determine whether BEAT netting rules apply based on current structure and whether changes before end of taxable year could reduce exposure.
## Practical Example
AmalgamCorp had a securities lending agreement with certain foreign affiliates. Under the specific identification method, they were able to show that substitute payments were directed to a single foreign related person and documented accordingly. Because of that, AmalgamCorp excluded those substitute payments from the numerator of BEAT calculation, reducing base erosion percentage below 3%, thus avoiding BEAT liability in that year.
Another scenario: if identification not clear, the fallback rule would still limit exposure because only the portion tied to what foreign related parties receive is considered.
## Action Plan for Entities Setting Up or Revamping
1. Audit current securities lending relationships and intercompany agreements.
2. Update contracts to include clarity of parties receiving payments.
3. Upgrade internal tracking systems to log payor/recipient per payment stream.
4. Project BEAT exposure under both methods (specific identification vs fallback) to choose optimal path.
5. Determine whether organizational changes (e.g. forming subsidiaries, changing counterparty structure) could reduce foreign-related payment exposure.
## Key Takeaway
For large entities involved in securities lending with foreign related parties, the final regulations give tools to limit BEAT exposure—if you build your entity structure and record‐keeping to satisfy the new specific identification criteria. Intelligent planning now means millions saved later.