Understanding the International Tax Implications of the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (“OBBBA”), enacted July 4, 2025, represents the most sweeping set of business tax reforms since the Tax Cuts and Jobs Act of 2017. OBBBA makes permanent and expands many temporary provisions from prior law, introduces new incentives, and repeals or curtails a range of green energy tax benefits. See below for a summary of the most significant international tax law changes, their effective dates, and practical implications for business taxpayers.

Major International Tax Law Changes

Foreign Derived Intangible Income (“FDII”) Changes

• Provision: Section 250 is amended to permanently decrease the deduction for FDII to 33.34% effective for taxable years beginning after December 31^st, 2025. Section 250(b)(2)(B) is repealed to remove Deemed Tangible Income Return (“DTIR”) and exclude gain and other income from the sale or disposition of property from the calculation. Additionally, it amends Section 1.250(b)-1(d)(2)(ii) to remove interest and research and experimental (“R&E”) expenses from the allocation of expenses against deduction eligible income. Renames FDII to Foreign Derived Deduction Eligible Income (“FDDEI”).
• Practical Implications: The OBBBA makes the deduction permanent at one-third of foreign derived eligible income, leading to a permanent effective tax rate of 14%. The simplification and removal of DTIR as well as changes in the deduction allocation may lead to additional benefits, particularly for U.S. exporters with significant domestic capital investments or overheads.

Global Intangible Low-Taxed Income (“GILTI”) Changes

• Provision: Section 250 is amended to permanently decrease the GILTI  exclusion  to 40%. Section 1.250(b)-2 is repealed to remove Qualified Business Asset Investment (“QBAI”) from the calculation. The OBBBA also limits the expenses allocable to the net Controlled Foreign Company (“CFC”) tested income under Section 951A for purposes of foreign tax credit. It amends Section 1.861-10 and Section 1.861-17to remove interest and R&E expenses from the allocation of expenses net CFC tested income. The new tax bill also reduces to 10% the haircut on taxes attributable to tested income effective for taxable years beginning after December 31^st, 2025. The 10% foreign tax credit haircut applies to previously taxed earnings on amounts distributed after June 28, 2025. The OBBBA also renames GILTI to Net CFC Tested Income (“NCTI”).
• Practical Implications: This provision reduces the amount excludable from US income and makes the deduction permanent, leading to an effective tax rate on net CFC tested income of 14%. The elimination of the QBAI requirements and the changes to the allocation of certain expense will simplify the compliance. Additional U.S. tax would now effectively be imposed if the foreign tax rate is less than 14%. For individual taxpayers Sec. 962 still proves to be an effective tax strategy.

Base Erosion and anti-abuse tax (“BEAT”) Changes

• Provision: For all applicable taxpayers Section 59A is amended and made permanent at 10.5% tax rate effective with taxable years beginning after December 31, 2025. The OBBBA permanently removes the high-tax exception, the capitalization of interests, and the base erosion threshold under Section 59A
• Practical Implications: The OBBBA permanently increases the minimum tax rate to 10.5% and greatly impairs the ability of large corporations that have substantial capital investments to reduce the minimum tax exposure.

Permanent Related CFC Look-Through Rule

• Provision: Section 954(c)(6) was originally enacted in 2005 as a temporary measure as a relief from having to treat dividends, interests, rents, and royalties as foreign personal holding company income thus recognizing the income in the US tax basis. This provision was sunsetting on December 31, 2019, and has been extended annually for one taxable year ever since.
• Practical Implications: The OBBBA renders this provision permanent, effective with taxable years beginning after January 1, 2026.

CFC Income Inclusions Add-Back for Business Interest Deduction Limitation

•        Provision: Section 163(j) is amended to permanently restore the earnings before interest, taxes, depreciation, and amortization (“EBITDA”) add-back for the business interest deduction limitation, increasing the amount of deductible interest.  Treasury regulation 1.163(j)(7) provides that the applicability of Section 163(j) extends to CFCs. The OBBBA also modifies the calculation of the adjusted taxable income to subtract CFCNTI, Subpart F income, and any Section 78 gross-ups effective with taxable years beginning after December 31, 2025.
•     Practical Implications: The change could result in a lower available interest deduction for cross-national businesses with CFC income inclusions.

Restoration of Limitation on Downward Attribution

• Provision: The TCJA tax changes of 2017 repealed Section 958(b)(4), this change led to additional compliance requirements for stock owned by foreign persons attributed to U.S. persons triggering CFC status. The OBBBA reinstates Section 958(b)(4) and creates new Section 951B that applies CFC rules to certain foreign controlled taxpayers effective with taxable years beginning after December 31, 2025.
• Practical Implications: This change significantly reduces the ambiguity of the applicability of constructive ownership. Furthermore, it increases the ownership threshold needed to trigger CFC status to more than 50% (from 10%) for foreign controlled U.S. shareholders.

Foreign Tax Credit (“FTC”) Changes

• Provision: Certain changes for deduction allocations implemented under Section 250 – see sections specific to GILTI and FDII for more in-depth information. Section 863 is amended to provide new sourcing rules for purposes of the FTC limitations. The new rules establish that U.S. persons can source up to 50% of the income from sale of inventory attributable to foreign offices or branches as foreign sourced. It also amends section 904(d)(2)(H)(i) to assign foreign taxes on income that would not otherwise be taxed in the US to the general basket effective with taxable years beginning after December 31, 2025.
• Practical Implications: The change alleviates the potential for double taxation, pre-OBBBA section 863 would treat inventory sales to foreign offices as U.S. sourced giving no rise to foreign tax credit availability. The change to Section 904 is a correction for TCJA drafting error that were not mitigated before, realigning the foreign tax credit baskets with the Treasury intentions.

Pro-rata Share Rule Change

• Provision: Section 1.952-1(c)(2)(3) is amended to include Subpart F income to any US shareholder who owned shares at any point during the taxable year in question while the entity was a Specified Foreign Corporation, irrespective of ownership at the end of the taxable year.
• Practical Implications: The change modifies the pro-rata inclusion rule for Subpart F income. Pre-OBBBA the ownership test was done on the last day of the CFC tax year, this modifies the ownership test to any point during the year, creating more Subpart F inclusion for minority shareholders of CFCs.

One-month deferral election

• Provision: Section 898(c) is repealed, specified foreign corporations had the ability of electing a different tax year than their major U.S. shareholder starting a month before year-end.
• Practical Implications: The change forces CFCs to align their tax year to the tax year of the majority U.S. shareholder effective with taxable years beginning after November 30, 2025.

Remittance Transfer Tax

• Provision: The OBBBA establishes Section 4475 imposing a 1% remittance transfer tax on any electronic transfer of funds to a recipient outside the United States. The excise tax is imposed on transfers for which the sender provides cash, checks, or other physical instruments. The excise tax is subject to limitations set by the FDIC. This provision will apply for tax years beginning after December 31, 2025.
• Practical Implications: The OBBBA as written does not contain any exceptions and it would be a new tax imposed on electronic fund transfers from sender within the US to a foreign country.

Summary Table of Key Effective Dates

If you have questions on how the OBBBA affects your tax situation, please reach out to your contact at GreerWalker so we can help you interpret the impact to you or your company.