What is QBAI?
How does the qualified business asset investment work?
What’s important to know?
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What Is QBAI
QBAI is an acronym referring to Qualified Business Asset Investment.
QBAI is essentially an American company’s aggregate adjusted basis at the end of each quarter in its fiscal year where certain types of tangible property are used in its trade or business and for which a deduction is allowed under Section 167 of the Internal Revenue Code.
What is the legal definition of QBAI?
According to 26 CFR § 1.250(b)-2, a Qualified Business Asset Investment is defined as follows:
The term qualified business asset investment (QBAI) means the average of a domestic corporation’s aggregate adjusted bases as of the close of each quarter of the domestic corporation’s taxable year in specified tangible property that is used in a trade or business of the domestic corporation and is of a type with respect to which a deduction is allowable under section 167. In the case of partially depreciable property, only the depreciable portion of the property is of a type with respect to which a deduction is allowable under section 167.
Determining QBAI is important as it allows you to calculate your 10% QBAI exemption.
The QBAI exemption refers to a 10% tax exemption given to US companies calculated on the basis of buildings, machinery, or equipment.
Essentially, the QBAI exemption is part of the Global Intangible Low-Tax Income (GILTI), a measure implemented by the US tax authorities to make it more difficult for companies to move profit out of the United States.
The QBAI exemption is also considered part of the Foreign Derived Intangible Income (FDII).
The main purpose of the QBAI exemption is to ensure tax foreign income to income that can easily be moved to low-tax countries such as intellectual property, patents, or other.
When domestic corporations shift their profits to low-tax jurisdictions in an attempt to avoid paying US taxes, the QBAI exemption mechanics gets triggered.
In essence, QBAI is a measure intended to make it more costly for companies that shift their profits to foreign jurisdiction while at the same time trying to avoid punishing companies for merely having operations outside of the United States.
How do you calculate QBAI?
The QBAI represents a pool of all tangible assets owned by a company used to calculate a tangible asset return which is then used to calculate the deemed return on intangible assets.
In other words, QBAI is the pool of intangible assets that you can use to calculate your Deduction-Eligible Income (DEI).
The QBAI is generally calculated to be the average adjusted bases, using quarterly measures, in tangible property depreciable under Section 167 used by a corporation in its trade or business to generate DEI.
You can look at an example of QBAI calculation works by consulting an IRS non-official document detailed in the GILTI concept.
QBAI Meaning Takeaways
So there you have it folks!
What does QBAI mean?
QBAI is depreciable tangible property owned by a company used to produce Global Intangible Low-Tax Income (GILTI).
Under the US tax rules, there are measures that have been implemented to make it more costly for US corporations to transfer profits out of the country to low-tax jurisdictions.
QBAI provides for a 10% tax exemption to US multinationals calculated based on the value of their tangible property such as buildings, machinery, and equipment.
In essence, the QBAI exemption protects US companies with lower profit margins on their foreign tangible property.
Now that you know what QBAI means, good luck with your research and investigation.
Remember, if you need tax advice, be sure to consult with a tax attorney or qualified tax professional.
This article is intended to give you general information to get you started in your investigation.
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