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Read MoreThe one big beautiful bill act:
International implications
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, marks a significant overhaul of the U.S. international tax landscape. This post provides a summary of the most significant changes impacting foreign income and taxes:
Key Changes for U.S. Multinational Corporations
For U.S. multinational corporations (MNCs), the OBBBA introduces a number of changes. These include adjustments to effective tax rates on certain foreign income, modifications to foreign tax credit (FTC) utilization, and revised regulations concerning Controlled Foreign Corporations (CFCs) and the Base Erosion and Anti-Abuse Tax (BEAT). The legislation also introduces a new excise tax on certain remittance transfers, impacting individuals engaged in cross-border financial transactions. These changes necessitate a thorough re-evaluation of global tax planning, compliance, and reporting strategies for affected taxpayers.
Global Intangible Low-Taxed Income (GILTI) is Now Called Net CFC Tested Income (NCTI)
The OBBBA fundamentally alters the GILTI regime, renaming it Net CFC Tested Income (NCTI). This rebranding reflects a key structural change: the elimination of the 10% deemed return on tangible property, known as Qualified Business Asset Investment (QBAI), from the calculation. Under prior law, the QBAI exclusion reduced the taxable income base, incentivizing tangible asset investments abroad. Its removal means that the full net income from controlled foreign corporations (CFCs) will now be subject to U.S. taxation as NCTI, potentially increasing the amount of offshore income included in U.S. tax calculations.
Foreign-Derived Intangible Income (FDII) Renamed to Foreign Derived Deduction Eligible Income (FDDEI)
Like GILTI, the OBBBA renames FDII to Foreign Derived Deduction Eligible Income (FDDEI). The Section 250 deduction that previously applied to FDII is modified to provide a 14% effective rate for FDDEI. This is achieved by permanently decreasing the deduction to 33.34%.
Base Erosion and Anti-Abuse Tax (BEAT) Modifications
The OBBBA makes permanent adjustments to the Base Erosion and Anti-Abuse Tax (BEAT). The BEAT rate increases from 10% to 10.5%, reversing a scheduled increase to 12.5% for taxable years beginning after December 31, 2025. This change is generally favorable for businesses subject to BEAT, as it prevents a larger planned increase.
Foreign Tax Credit (FTC) Rules
The OBBBA introduces several modifications to the FTC rules, making it more likely for U.S. companies to utilize these credits. A significant change is the reduction of the Section 960(d) haircut applied to FTCs for foreign taxes on tested income subject to the GILTI regime (now NCTI) from 20% to 10%. This increases the deemed paid credit for NCTI from 80% to 90% of otherwise creditable taxes. For high-tax foreign jurisdictions, this enhancement could potentially eliminate U.S. residual tax on NCTI.
Controlled Foreign Corporation (CFC) Rules
The OBBBA makes several key adjustments to CFC rules, providing both certainty and new complexities. The Section 954(c)(6) CFC look-through rule is permanently extended. This rule is critical for U.S. multinationals, as it allows dividends, interest, rents, and royalties to move between related CFCs without triggering Subpart F income. The ability for foreign corporations to elect a U.S. tax year beginning one month earlier than the majority U.S. shareholder’s year (under Section 898) is eliminated. This change, effective for foreign corporation tax years beginning after November 30, 2025, may necessitate short-year filings and impact FTC allocation.
Excise Tax on Remittance Transfers to Other Countries
The OBBBA introduces a new 1% federal excise tax on certain electronic transfers of money from the United States to an international jurisdiction. This tax is payable by the sender and collected by the remittance transfer provider. There are specific exceptions to this tax, notably for transfers from accounts at certain U.S.-insured financial institutions and transfers using U.S.-issued debit or credit cards.
Implications for specific industries
Manufacturing Industry
As described on our previous blog post, the OBBBA significantly alters the tax landscape for manufacturers, aiming to incentivize domestic production and capital investment. A key provision is the permanent reinstatement of 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This allows businesses to immediately expense the full cost of eligible machinery, equipment, and certain improvements to nonresidential real property. Innovation within manufacturing is also supported by the restoration of immediate expensing for domestic Research & Experimentation (R&E) expenditures for tax years beginning after December 31, 2024.
Technology Industry
The technology industry, characterized by its reliance on intangible assets and R&D, will experience specific impacts from the OBBBA’s international tax changes. The overhaul of GILTI and FDII into NCTI and FDDEI, respectively, with the elimination of the QBAI deemed return, means that the full net income from foreign operations, including that attributable to intangible assets, will be subject to U.S. taxation without the previous offset for tangible asset investments. For R&D expenditures, while the immediate expensing of domestic R&E costs is a significant benefit for technology companies investing in innovation within the U.S., the requirement to capitalize and amortize foreign R&D expenditures over 15 years remains unchanged.
Compliance Challenges and Strategic Considerations
The sweeping international tax changes introduced by the OBBBA present both new opportunities and significant compliance challenges for U.S. multinational corporations and individuals. Proactive assessment and strategic planning are essential to navigate this evolving landscape, and we are here to help.
