The “One Big Beautiful Bill Act (OBBBA)”, signed into law on July 4, 2025, represents a sweeping overhaul of the U.S. international tax system, with provisions impacting how U.S. multinational enterprises (MNEs) calculate foreign income, deductions, and credits. This article is meant to outline the key international tax provisions and planning considerations for U.S. businesses with cross-border operations.
Unless otherwise noted, the changes are effective for taxable years beginning after December 31, 2025.
GILTI Rebranded as Net CFC Tested Income (NCTI)
The OBBBA renames the Global Intangible Low-Taxed Income (GILTI) regime as Net CFC Tested Income (NCTI) and makes the following changes:
- Net DTIR (deemed intangible income return) Eliminated: The deduction for 10% of QBAI (qualified business asset investment) is removed from the income calculation, eliminating the benefit of tangible asset investment in reducing the NCTI inclusion.
- Deduction Reduced: The Section 250 deduction is permanently reduced to 40%. This change, coupled with the 90% limitation on deemed paid foreign tax credits (see below), allows a U.S. corporate shareholder (or a U.S. non-corporate shareholder making a Sec. 962 election) to recognize an incremental U.S. federal tax on NCTI of zero, as long as the creditable foreign taxes allocable to NCTI are at an effective rate of at least 14%. A lower rate of creditable foreign tax may result in an incremental U.S. federal tax rate on NCTI of up to 12.6%.
Foreign Tax Credit (FTC) Enhancements
- Deemed Paid Credit Increased: The FTC for NCTI (including the Sec. 78 gross-up) increases from 80% to 90% of otherwise creditable taxes. PTEP Distributions: A 10% disallowance applies to foreign taxes on distributions of previously taxed earnings (PTEP) of NCTI made after June 28, 2025.
- Simplified Expense Allocation and apportionment for the Sec. 951A category (NCTI [formerly GILTI]): The OBBBA limits expense allocation and apportionment for FTC allocation purposes to the Sec. 250 deduction (including the portion of the Sec. 250 deduction attributable to the Sec. 78 gross up), and other “directly allocable” expenses. Interest and R&E expenses are explicitly excluded from allocation. The law is otherwise unclear on how “directly allocable” expenses are determined, and Treasury and IRS will likely have to provide further guidance.
FDII Rebranded as Foreign-Derived Deduction Eligible Income (FDDEI)
- Deduction Increased: The Section 250 deduction for FDDEI is permanently set at 33.34%, lowering the effective tax rate on FDDEI to 14%.
- QBAI Threshold Removed: Removes the 10% QBAI “floor” in the calculation of FDDEI, which will expand and/or increase the FDDEI benefits to more businesses, including those with substantial tangible assets or low-margin export models.
- Expense Apportionment Simplified: Only directly related expenses are allocated to FDDEI. Interest and R&E expenses are explicitly excluded from allocation for FDDEI purposes.
- Exclusions Expanded: Income from the sale or disposition of intangibles and depreciable property is excluded from FDDEI if occurring after June 16, 2025.
BEAT Adjustments
- Rate Set at 10.5%: The BEAT rate is permanently reduced from the scheduled 12.5% to 10.5%.
- Credits Preserved: The treatment of R&E, low-income housing, renewable electricity, and Section 48 credits in the calculation of the BEAT liability under current law are preserved permanently.
- “Super BEAT” Removed: The previously proposed Section 899 “revenge tax” and the associated enhanced BEAT provisions were omitted following U.S. negotiations with G7 nations under the OECD Pillar Two framework.
Other Key International Provisions
- Foreign Tax Credit Sourcing Rule for Inventory Sales: For U.S.-produced inventory sold via foreign branches, only 50% of income attributable to foreign sales functions may be treated as foreign source.
- CFC Look-Through Rule: Section 954(c)(6) is permanently extended.
- One-Month Deferral Eliminated: CFCs must align their tax years with U.S. shareholders for taxable years beginning after Nov. 30, 2025.
- Section 958(b)(4) Reinstated: Prevents downward attribution of CFC stock from foreign to U.S. persons.
- New Section 951B: Although the general rule restricting downward attribution under Sec. 958(b)(4) was reinstated, Sec. 951B expands the applicability of the Subpart F and NCTI regimes to U.S. shareholders that are deemed to own at least 50% of the vote and/or value of certain foreign corporations, including through downward attribution.
- Pro Rata Inclusion Rules Revised: U.S. shareholders must include subpart F and NCTI based on the portion of the year they held CFC stock, not just year-end ownership. A transition rule applies for the calculation of a U.S. shareholder’s pro-rata share with respect to certain dividends paid during 2025.
Technical Clarifications
- Updated reference under Sec. 904(d)(2)(H) related to “base differences”
- Updated reference under Sec. 904(d)(4)(C) related to unsubstantiated 50/10 dividends
- Updated reference under Sec. 951A(f)(1)(A) related to sourcing of NCTI
Other Business Tax Provisions
- The requirement to capitalize and amortize foreign R&D expenditures over 15 years remains unchanged. Taxpayers should continue evaluating contract research activities at the CFC level.
- Changes to the calculation of adjusted taxable income for purposes of the 163(j) business interest limitation will likely have an impact on the calculation of E&P for CFC’s, which in turn will likely impact the calculation of Subpart F and NCTI inclusions for U.S. shareholders of CFC’s.
Excise Tax on Remittance Transfers
- A new 1% federal excise tax applies to certain electronic transfers of money from the U.S. to foreign countries when funded by cash, money orders, or similar instruments. Transfers via U.S.-issued debit or credit cards are exempt.
Final Thoughts
The new law’s international tax provisions represent a fundamental shift in how U.S. taxpayers engage with foreign income, deductions, and credits. While some changes simplify compliance and expand benefits (e.g., FTC and FDDEI reforms), others introduce new complexities and planning challenges, particularly for capital-intensive businesses, passthrough owners, and multinational groups with mixed tax profiles.
At The Bonadio Group, our international tax specialists are ready to help you assess the impact of these changes and develop strategies to optimize your global tax position.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
