One Big Beautiful Bill's International Tax Changes

Earlier this year, Congress passed and the President signed the One Big Beautiful Bill Act (OBBBA), ushering in a new era of cross-border tax rules that take effect starting in 2026. While the name might be tongue-in-cheek, the changes are real - and they’re significant for U.S. businesses operating internationally.

OBBBA modifies the GILTI and FDII regimes, retools sourcing and foreign tax credit rules, alters how Subpart F applies, and introduces new compliance triggers like a remittance tax and an expanded BEAT regime. For taxpayers with controlled foreign corporations (CFCs), export income, or global structures, these updates will reshape planning and reporting in material ways.

Here’s a breakdown of the key changes and how they affect the international tax landscape.

GILTI Is Out, NCTI Is In

Under OBBBA, the Global Intangible Low-Taxed Income (GILTI) regime is being replaced by Net CFC Tested Income (NCTI). While the core inclusion concept remains, the rules get tougher:

• The 10% QBAI exclusion for tangible assets is eliminated.
• The §250 deduction is reduced from 50% to 40%, increasing the effective U.S. tax rate on this income to approximately 14% (after foreign tax credits).
• The foreign tax credit (FTC) haircut is narrowed - 90% of foreign taxes are now creditable, up from 80%.

These changes mean most U.S. shareholders will see larger inclusions and smaller deductions, resulting in higher residual U.S. tax on foreign earnings. The breakeven foreign effective tax rate jumps to roughly 14%, and planning under §962 - though still useful - becomes more situational, favoring high-taxed jurisdictions or structures that delay cash distributions.

Planning point: With the new regime applying to tax years beginning after 2025, calendar-year taxpayers have one final year under current law to model the impact and make structural or pricing adjustments.

FDII Becomes FDDEI

The Foreign-Derived Intangible Income (FDII) regime is also being reshaped under OBBBA. The new regime is called Foreign-Derived Deduction-Eligible Income (FDDEI).

Here’s what’s different:

• The FDDEI deduction is a flat 25% of eligible foreign-derived income, rather than 37.5% of “excess returns.”
• The QBAI concept is removed entirely, simplifying the calculation but also reducing benefits for exporters with large tangible asset bases.

The result? Capital-intensive exporters may face higher effective tax rates due to the loss of the QBAI shield. Meanwhile, asset-light businesses (like tech and services) may see little change in the mechanics, but will still experience a rate increase from 13.125% to 14%.

Planning opportunity: Accelerating foreign-derived income into 2025 locks in the current 37.5% deduction, while deferring deductions could create a permanent 0.875% rate benefit under the new rules. Also note: deferred tax assets tied to §250 will need to be remeasured.

Inventory Sourcing

OBBBA introduces a taxpayer-friendly rule for sourcing income from inventory sales, though it doesn’t repeal existing sourcing rules under §863(b).

The new rule applies when:

• Goods are produced in the U.S.,
• Sold for use outside the U.S., and
• Attributable to a foreign office or branch of the taxpayer (as defined under §864(c)(5)).

In these cases, up to 50% of the taxable income from the sale may be treated as foreign-source for FTC purposes.

This change helps taxpayers improve foreign tax credit utilization, particularly for foreign branches engaged in distributing U.S.-manufactured goods, without disturbing the broader sourcing framework.

Subpart F and CFC Rules

Several changes to Subpart F and CFC inclusion mechanics will affect how income is picked up and by whom.

• The §954(c)(6) “look-through rule” is now permanent. This prevents double Subpart F inclusions by allowing certain inter-CFC payments (like interest or royalties) to retain the character of the payer’s income.
• The “last-day” rule is repealed. Previously, U.S. shareholders only picked up Subpart F income if they owned stock on the last day of the CFC’s year. Under the new rule, any shareholder who owns stock on any day during the CFC year must include their pro rata share of income.

Example: If a U.S. shareholder acquires a CFC mid-year and sells it before year-end, they’ll now be on the hook for their portion of Subpart F income - even without ever receiving a dividend. That’s a big change for M&A and joint venture planning.

Outbound Remittance Tax

Starting January 1, 2026, OBBBA adds a 1% federal excise tax on certain outbound international money transfers made from U.S. accounts.

The tax:

• Applies to U.S. citizens, green card holders, and some non-citizens using U.S.-based remittance services.
• Does not apply to most standard ACH transfers, wires, debit/credit card payments, or app-based transfers.
• Is collected at the time of transaction by the financial institution or remittance provider.

While the rule doesn’t target typical business payments, it creates a new layer of compliance for cross-border transfers by individuals and could be expanded in the future.

BEAT Gets Broader and Deeper

The Base Erosion and Anti-Abuse Tax (BEAT) is significantly expanded under OBBBA.

Key changes:

• The base erosion percentage test is repealed. If a group exceeds $500 million in gross receipts and $50 million in base erosion payments, BEAT applies automatically.
• The BEAT rate increases to 12.5% in 2024 and 15% in 2025 and beyond.
• The base is widened to include COGS for imported inventory and most capitalized costs. Only highly specific SCM-eligible services remain carved out.

Multinationals that previously flew under the BEAT radar may now face substantial exposure - even those whose foreign affiliate payments were previously outside the base erosion definition.

Final Thoughts

With the One Big Beautiful Bill Act now law, the landscape for international tax has shifted again. The changes are detailed, sometimes technical, but very real in their impact. Bigger GILTI (now NCTI) inclusions. A slimmed-down FDII. Harder Subpart F rules. New sourcing mechanics. And compliance tripwires like the outbound remittance tax and a supercharged BEAT.

Most of these rules take effect for tax years beginning after December 31, 2025. That gives calendar-year taxpayers one more year to model, restructure, and plan. Whether that means realigning intercompany pricing, changing entity classification, or simply accelerating income or deductions, the window is open now - but not for long.

Need help navigating these changes? We’re already working with clients to understand their exposure and chart the path forward. If you’re ready to get ahead of the curve, we’re here to help.