TAX TAKE: The Administration BEATs The SHIELD

The recent release of the Treasury Department's Greenbook saw the unveiling of significant detail regarding the Administration's Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) proposal. Put forth as an anti-base erosion measure targeting domestic corporations and branches that will replace the Base Erosion and Anti-Abuse Tax (BEAT), the SHIELD presents some potentially thorny issues regarding its treatment of the cost of goods sold (COGS), its deviation from a true top-up tax model, and its reliance on an agreed-upon minimum tax threshold percentage to relieve taxpayers of potential liability.

With regard to COGS, the well-known exception of these types of payments from the BEAT regime is eliminated in the context of the SHIELD. Technically speaking, the treatment of COGS in the Code is handled as a reduction to, rather than a deduction from, income. Because the BEAT involves direct tracing between related party payments made and the deductions