International Tax Highlights of the One Big Beautiful Bill (OBBB)

On July 4, 2025, President Trump signed the One Big Beautiful Bill (OBBB), ushering in extensive changes to U.S. tax law, many of which apply to both 2025 and 2026. This post is a high-level summary of the key international provisions. As always, individual client circumstances may require additional analysis. Guidance from the IRS is needed on many of the issues discussed below.

GILTI Is Renamed to Net CFC Tested Income

OBBB eliminates the Net Deemed Tangible Income Return (NDTIR) carveout from the global intangible low taxed income (GILTI) regime, so all net income of a controlled foreign corporation (CFC) is now subject to deemed repatriation. Beginning in 2026, the effective U.S. rate on this income is permanently set at 12.6% for corporations (versus 10.5% pre-2026 and 13.125% under prior law).

Foreign tax credit (FTC) mechanics also change:

• Only the §250(a) deduction and directly allocable expenses may be allocated to the GILTI basket; an allocation of interest and R&D expenses are no longer required.
• The FTC “haircut” on deemed paid taxes decreases from 20% to 10% (i.e., 90% of foreign taxes are creditable).

FDII Is Renamed to FDDEI

The former foreign derived intangible income (FDII) rules are replaced by foreign derived deduction eligible income (FDDEI). NDTIR and the foreign derived ratio are removed. The corporate effective rate on this income becomes 14% starting in 2026 (previously 13.125%, scheduled to rise to 16.406%). Deduction eligible income exceptions are broadened, and fewer expenses are allocable to DEI.

Reinstated §958(b)(4) and New §951B

Downward attribution from foreign persons to U.S. persons is again prohibited under §958(b)(4), which had been repealed under the Tax Cuts and Jobs Act (TCJA) of 2017. Simultaneously, new §951B introduces “foreign controlled foreign corporations” (FCFCs) and “foreign controlled U.S. shareholders” (FCUSs), applying constructive ownership rules through a foreign parent, significantly affecting many multinational structures. These changes are effective starting in 2026.

BEAT

The Base Erosion and Anti‑Abuse Tax (BEAT) rate will be a permanent 10.5% starting in 2026 (was 10% for 2025, scheduled to rise to 12.5%). OBBB also permanently retains the current treatment of popular credits (e.g., R&D, low-income housing) for BEAT purposes. Currently these credits do not impact the BEAT calculation. Before OBBB, 2026 would have seen a narrowing of the exceptions

Other Notable Changes

• Permanent §954(c)(6) look-through for Subpart F income received or accrued from a CFC from another CFC. This rule preserves the ability to look through to the underlying income of the CFC payor to determine if it would have been taxable as Subpart F income at that level.
• § 951(a) now requires a U.S. shareholder that owned CFC stock at any time during the year to include its pro‑rata share of Subpart F and GILTI income (previously measured only based on year‑end ownership).
• New § 904(b)(6) modifies the sourcing rules for income from U.S. produced inventory sold through a foreign branch. Up to 50% of such income will be treated as foreign source income for foreign tax credit purposes, effective starting in 2026.
• § 898(c) election repealed. CFCs must conform to the majority U.S. shareholder’s tax year (effective for CFC years beginning after Nov. 30, 2025) without the ability to elect a tax year that begins a month before the taxable year of the majority U.S. shareholder.

Most provisions apply to tax years beginning after Dec. 31, 2025, unless noted otherwise. International tax remains complex. Please contact your KSM advisor to discuss how these changes may affect your specific situation or complete the form below.