What You Need to Know:
- On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), marking a significant overhaul of the international tax landscape.
- This legislation introduces several key changes aimed at refining existing frameworks and implementing new rules to better align with the global economic environment.
- These provisions are set to take effect for taxable years beginning after December 31, 2025.
Foreign Tax Credits (FTCs)
- Increased Deemed Paid Credits: The Section 960 haircut has been reduced from 20% to 10%, increasing the available credits to 90%.
- Limited Sourcing Rule: Up to 50% of income from U.S.-produced inventory sold abroad through foreign branches can be treated as foreign-source income.
- No Change for Business Owners Abroad: The fundamental FTC system remains unchanged unless a Section 962 election is made.
Global Intangible Low-Taxed Income (GILTI)
- Renamed to Net CFC Tested Income (NCTI): The GILTI regime is now called Net CFC Tested Income (NCTI).
- Reduced Section 250 Deduction: The deduction is reduced to 40%, resulting in a higher effective U.S. tax rate of 12.6% on NCTI.
- Elimination of Deemed Tangible Income Return (DTIR): DTIR is removed from the calculation, simplifying the process.
Foreign-Derived Intangible Income (FDII)
- Renamed to Foreign-Derived Deduction Eligible Income (FDDEI): FDII is now called Foreign-Derived Deduction Eligible Income (FDDEI).
- Reduced Section 250 Deduction: The deduction is reduced to 33.34%, leading to an effective tax rate of 14% on FDDEI.
- Exclusions from Deduction Eligible Income (DEI): Clarifies and expands exclusions, including income from outbound transfers under Section 367(d) and gains from sales of depreciable property.
- Limited Deductions: Deductions for FDDEI calculations are limited to those directly related to qualifying income, excluding interest and R&E expenses.
- Elimination of Return on QBAI: The return on Qualified Business Asset Investment (QBAI) is eliminated for FDDEI calculations.
Base Erosion and Anti-Abuse Tax (BEAT)
- Permanent Rate: The BEAT rate is set at 10.5%.
- Preserved Credits: Credits against the BEAT include R&D credits, low-income housing credits, renewable electricity production credits, and Section 38 credits.
Controlled Foreign Corporation (CFC) Rules and Subpart F
- Downward Attribution Eliminated and Section 951B Introduced: Reinstates Section 958(b)(4) and introduces Section 951B to address policy concerns.
- Permanent Look-Through Rule: The Section 954(c)(6) look-through rule is made permanent.
- Modified Pro-Rata Share Allocation Rules: Income is allocated to U.S. shareholders owning CFC stock at any time during the tax year.
Proposed Section 899 ("Revenge Tax") – not included
- The proposed Section 899, which would have increased taxes on governments and residents of countries enacting "unfair foreign taxes," is not included in the final Act.
Other International Tax-Related Provisions
- Section 367(d) Transfers: Income from outbound transfers under Section 367(d) is excluded from deduction eligible income.
- Expense Apportionment: Limited to directly allocable deductions, excluding interest and R&E expenses.
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.
