For taxpayers with global business activities, the overhaul ushered in by Trump’s One Big Beautiful Bill (OBBA) is like riding a tax rollercoaster: some exciting highs, some stomach-dropping dips, and a lot of fine print.
Here’s a breakdown of the bill’s key international tax changes and what they may mean for you.
GILTI Rebranded as CFC Net Tested Income
The Global Intangible Low-Taxed Income (GILTI) regime, a significant compliance burden for U.S. shareholders of Controlled Foreign Corporations (CFCs) since 2017, has been restructured. GILTI is now rebranded as CFC Net Tested Income (NTI). The Qualified Business Asset Investment (QBAI) deduction, which previously reduced taxable income from tangible assets such as machinery or equipment, has been eliminated. Industries with significant capital investments will be most affected by this change.
The Section 250 deduction for this income is reduced from 50% to 40% (previously scheduled to decrease to 37.5%). For a CFC earning $1 million, taxable income is now $600,000 instead of $500,000, resulting in a higher tax cost.
Foreign Tax Credits: Enhanced Flexibility
The Foreign Tax Credit (FTC) available for the former GILTI, and now CFC NTI, will become more generous. The “haircut” on credits for taxes paid abroad drops from 20% to 10%. So, if you paid $100,000 in foreign taxes on your CFC NTI income, you can now claim $90,000 as a credit, up from $80,000. But don’t get too comfortable—new rules on allocating income and claiming FTCs for Previously Taxed Earnings and Profits (PTEP) from CFCs are about as clear as fog. Taxpayers should confer with tax professionals to ensure compliance and make the most of available tax credits.
Downward Attribution: A Half-Win
OBBA reinstates the block on downward attribution from a foreign entity under Section 958(b)(4). This provision was a part of the tax code since 1962 but was repealed as part of the 2017 Tax Cuts and Jobs Act (TCJA). The repeal of this provision was the most controversial part of TCJA as many felt that it had far reaching and severe unintended consequences.
Since 2017, there has been a constant chorus of voices demanding a legislative fix to the mess created by the repeal of this provision. The reinstatement of this provision is welcome news to the international taxpayer community. But keep in mind, the new Section 951B permits this downward attribution in specific scenarios where certain ownership thresholds are met.
Look-Through Rule: Permanent Status
The Section 954(c)(6) look-through rule is made permanent by OBBA. This allows payments like interest or dividends between related CFCs to sidestep Subpart F treatment. This provision has a history of being set to expire and then extended several times. For businesses managing multiple CFCs, this permanent extension is a reliable anchor for long-term planning.
FDII: New Name, Adjusted Deduction
Foreign-Derived Intangible Income (FDII), the tax break for U.S. companies selling abroad, gets a rebrand as Foreign-Derived Deemed Eligible Income (FDDEI). This Section 250 deduction gets reduced from 37.5% to 34.33%. For exporters, this results in a modestly higher tax liability.
New Sourcing Rules
OBBA introduces new sourcing rules for inventory sales through foreign branches. These rules may reallocate income to U.S. tax jurisdiction, potentially increasing tax obligations for taxpayers with foreign branch operations.
BEAT Changes
The Base Erosion and Anti-Abuse Tax (BEAT) rises from 10% to 10.5%. BEAT is a minimum tax introduced in the 2017 TCJA to prevent large corporations from reducing their U.S. tax liability by making deductible payments to related foreign entities. With the increase in the BEAT, some large multinational corporations operating in the U.S. will now face a slightly higher minimum tax on specific payments made to their foreign affiliates.
The Impact: Wins, Potholes, and Paperwork
For our clients with international activities or U.S. assets abroad, OBBA presents a mixed bag:
- The FTC reduction and permanent look-through rule offer tangible benefits, easing tax burdens and providing planning certainty.
- Conversely, the GILTI rebrand, QBAI elimination, and FDII deduction cut increase tax costs, particularly for CFC owners and exporters.
- The downward attribution adjustment is a boon, but Section 951B pulls some taxpayers back into the CFC net.
- New sourcing rules and the BEAT increase add further complexity.
Compliance and Savings
OBBA’s tax changes are a quirky mix—part tax cut, part tax trap, all requiring a sharp eye. For global investors and expats, a misstep could mean overpaying taxes or missing credits. To optimize tax positions, avoid compliance issues, and manage increased costs, taxpayers should monitor how recent tax law changes are being applied and collaborate closely with tax professionals to adjust their strategies accordingly.
Trump’s OBBA may be big and beautiful for some, but for those with international ties, it’s a high-stakes game. Staying informed and planning strategically, while drawing on tax professionals’ expertise, can help maximize compliance and financial outcomes.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
