President Trump signed the One Big Beautiful Bill (the "OBBB") into law on July 4, 2025. The OBBB Act contains a myriad of changes for all types of businesses and industries for tax years beginning after December 31, 2025.
For U.S. businesses with operations outside the country, the OBBB brings notable changes to the complex international tax landscape. Some may face new U.S. tax rates based on ownership in controlled foreign corporations (CFCs), while others may no longer meet the definition of a CFC at all. Corporate exporters may benefit from increased tax savings, depending on their assets in the U.S. Additionally, many businesses will be able to use more foreign tax credits to offset their U.S. tax liability.
To help you quickly navigate the most impactful provisions, we've outlined four key international tax changes that could affect your international business operations:
1. What is happening to Global Intangible Low-Taxed Income (GILTI)?
The Tax Cuts and Jobs Act of 2017 (the "TCJA") introduced Global Intangible Low-Taxed Income (GILTI) for tax years beginning in 2018. A U.S. shareholder of a CFC that generates GILTI must include its pro-rata share of the CFC's tested income as taxable income.
The effective corporate tax rate for GILTI was 10.5% instead of the regular 21% tax rate, before taking into account any foreign income taxes. A Qualified Business Asset Investment (QBAI) component—related to investments in certain depreciable property—served to reduce GILTI.
Beginning with tax years beginning after December 31, 2025, the OBBB renames GILTI as Net CFC Tested Income and increases its effective U.S. tax rate from 10.5% to 12.6% (pre-foreign tax credits).
The OBBB also repeals the QBAI component in calculating Net CFC Tested Income (NCTI), which effectively increases the amount of Net CFC Tested Income—and may result in a higher U.S. tax liability for affected businesses.
On a more favorable note, the OBBB reduces the 20% limitation on foreign tax credits that can offset Net CFC Tested Income—from 20% to 10%. This change may help reduce the amount of U.S. tax due on that income.
2. What is happening to Foreign Derived Intangible Income (FDII)?
The TCJA also introduced Foreign Derived Intangible Income (FDII) for tax years beginning in 2018. It provides a tax benefit to Subchapter C corporations that export products or services to foreign customers.
The effective corporate tax rate for FDII was 13.125% as opposed to the regular 21% corporate tax rate. The tax benefit was reduced by a QBAI component.
The OBBB renames FDII so that it will be known as Foreign-Derived Deduction Eligible Income. Further, the effective corporate tax rate is being increased from 13.125% to 14% for tax years beginning after December 31, 2025.
Finally, the OBBB is repealing the QBAI component of the calculation. This will benefit taxpayers by expanding the amount of income that can qualify for the 14% preferred rate.
3. What is changing with attribution rules and CFC ownership?
The TCJA repealed Section 958(b)(4), a provision in the Internal Revenue Code that served to limit when a foreign corporation met the definition of a CFC. The effect of this repeal was burdensome and caused many foreign corporations with limited U.S. ownership to meet the definition of a CFC beginning in 2018, subjecting them to the CFC anti-deferral rules (such as GILTI).
The OBBB restores former Section 958(b)(4) to limit the attribution rules when determining a U.S. person's ownership in a foreign corporation. This change applies to tax years beginning after December 31, 2025.
In addition, the OBBB adds a new Section 951B, which applies certain "downward" attribution rules. If a U.S. person is treated as a Foreign Controlled U.S. Shareholder that owns an interest in a "Foreign CFC," they will now be subject to the CFC anti-deferral rules.
4. What is changing with Foreign Tax Credits (FTC)?
Under the TCJA, the foreign tax credit (FTC) regime introduced several limitations that impacted U.S. multinationals with foreign operations:
- Foreign income taxes associated with GILTI were placed in a separate FTC basket and only eligible for an 80% deemed paid credit, with no carryover provisions. This limitation often led to excess foreign taxes that could not be used to offset U.S. tax.
- Deductions like interest and stewardship expenses were broadly allocated across income categories, reducing foreign-source income for FTC limitation purposes.
- For inventory produced in the U.S. and sold abroad, sourcing rules generally treated income as U.S.-source—further limiting the ability to apply FTCs.
The OBBB makes several changes that are generally more favorable to taxpayers:
- The deemed paid credit under section 960(d) increases from 80% to 90% for foreign taxes tied to Net CFC Tested Income.
- Deduction allocation is narrowed: only directly allocable deductions and the section 250 deduction (plus the associated section 164 deduction) may apply to NCTI.
- A new sourcing rule allows up to 50% of income from U.S.-manufactured inventory sold through a foreign office to be treated as foreign-source for FTC purposes.
Together, these changes expand the foreign-source income base and enhance the taxpayer's ability to fully utilize FTCs.
Note: The FTC formula is foreign source income ÷ worldwide income = FTC ceiling. Since the new provisions increase foreign source income, taxpayers should see a higher allowable credit.
Additional international tax provisions to know
While the four areas above cover the more significant changes, several other international provisions in the OBBB may also impact your business:
Expanded BEAT
- Broadens the scope of the Base Erosion and Anti-abuse Tax (BEAT) for large multinational groups.
CFC Look-through rule for certain passive income
Permanently extends the CFC look-through rules for payments of passive income made by lower-tier CFC to upper-tier CFC.
Allows first-tier foreign entities to continue legitimate business through lower-tier subsidiaries without triggering additional anti-deferral measures.
CFC Ownership Timing Rules
Changes the allocation of Subpart F and Net Tested CFC Income from an end-of-year test to a pro rata calculation based on days of ownership.
U.S. sellers of CFC stock must now recognize income during the portion of the year they held the CFC stock.
This is unfavorable for sellers, but beneficial for buyers who will no longer bear the entire year's CFC income inclusion.
Next steps: Review and align your international tax strategy
If you're managing international interests, now is the time to evaluate your exposure—particularly for export income, foreign subsidiaries, and intercompany payments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
