Introduction
The Tax Cuts and Jobs Act (TCJA) of 2017 completely overhauled the U.S. international tax regime with the addition of several new provisions, most notably Global Intangible Low Taxed Income or GILTI. The so-called “One Big Beautiful Bill” (OBBB)[i] was signed into law in July 2025 includes several modifications in the international tax area. While the 2025 changes are not nearly as comprehensive and far-reaching as the 2017 changes, they could nevertheless have significant effects and outcomes.
Here is a summary of the provisions that have changed and how they have changed.
Global Intangible Low Taxed Income – GILTI
The so-called “One Big Beautiful Bill” (OBBB) was signed into law in July 2025 includes several modifications in the international tax area
Under OBBB, GILTI is going away. Sounds like a cause for celebration, but in reality, it appears to be more of an exercise in rebranding than an elimination of the GILTI tax provision.
There are several technical changes that will apply to GILTI rolling out for tax years beginning after December 31, 2025, including: 1) elimination of the deduction for Deemed Tangible Investment Return (DTIR), 2) reduction of the 50% deduction for C-Corporation under Section 250, and 3) foreign tax credits changes.
Elimination of the deduction for Deemed Tangible Investment Return (DTIR). The existing GILTI formula allowed taxpayers to reduce their Net CFC Tested Income by 10% of their Qualified Business Asset Investment (QBAI). Under the new provision, the inclusion under Section 951A will be the Net CFC Tested Income without a deduction for DTIR. The reasoning behind the rebranding from GILTI, which originally limited the inclusion to income from intangible assets through the QBAI deduction, expanded to include Net CFC Tested Income (NCTI). Therefore, it is now simply the Controlled Foreign Corporation’s (CFC’s) Tested income without further reductions.
Section 250(a)(1)(B) deduction allows for a reduced NCTI inclusion of a Subchapter C Corporation. This deduction was 50% and has now been reduced to 40%. Prior to the OBBB, the deduction had been scheduled to be reduced to 37.5%. This means that while the deduction is being reduced, it is slightly more favorable than what it was scheduled to become in the absence of OBBB.
For Individual taxpayers that are shareholders in CFCs and have in the past used the Section 962 election to reduce their taxes owed due to GILTI inclusions, this change to the Section 250(a)(1)(B) deduction will likewise reduce their benefit from the Section 962 election; the deduction for GILTI will be 40% and not 50%. Generally, OBBB did not change any of the rules regarding Section 962; consequently, a more detailed discussion of this provision was not included in this analysis.
The deemed paid foreign tax credit available on NCTI, which had been 80% of allocable foreign taxes, is now adjusted upward to 90% of allocable foreign taxes. This means taxpayers can potentially get a larger benefit from the Foreign Tax Credit.
Individual taxpayers that are shareholders in CFCs, and have in the past used the Section 962 election to reduce their taxes owed due to GILTI inclusions, will now benefit from being able to utilize a higher percentage of their potential deemed paid foreign tax credit.
Deductions allocable to NCTI are limited when calculating the net income from NCTI for purposes of determining the Foreign Tax Credit limitation under Section 904. Specifically, interest and Research and Experimentation (R&E) expenses would no longer be allocated to NCTI. The allocation of these expenses in the past had the effect of reducing the Foreign Tax Credit benefit. This modification will allow for larger overall foreign tax credits for taxpayers.
Allocation of CFC Inclusions
There is an important change affecting how NCTI and Subpart F income are allocated to U.S. shareholders of a CFC. Before 2026, all NCTI and Subpart F income was assigned solely to those who were shareholders on the final day of the CFC’s tax year. Consequently, if CFC ownership changed during the year, the entire year’s Subpart F and NCTI would still be attributed to the end-of-year shareholders. Starting January 1, 2026, however, these inclusions will be distributed among any shareholders who owned stock at any point during the year, proportionally based on the number of days they held their shares.
Foreign Derived Intangible Income (“FDII”)
FDII is also getting a rebranding. This provision is now renamed the “Foreign Derived Deduction Eligible Income” or FDDEI. Unlike the renaming of GILTI, however, this new name brings with it some notable changes.
Section 250(a)(1)(A) deduction is now down from 37% to 33.34%. In the absence of OBBB, this deduction had been scheduled to go down to 21.875%, so it appears to be some good news here for taxpayers.
Similar to what was done with GILTI, taxpayers will no longer reduce their Deemed Eligible Income by the DTIR, which was calculated in the same manner that it was calculated for GILTI. This means that taxpayers who are eligible for FDDEI and have significant fixed assets will get a bigger FDDEI benefit because they will not be limited to deducting a percentage of their fixed assets.
Effective for transactions occurring after June 16, 2025, the FDDEI deduction will not be available for gains from the sale or disposition of intangible property or other property subject to amortization or depreciation.
Reinstatement of Section 958(b)(4) and Enactment of New Section 951B
Of all the provisions in TCJA, none generated as much controversy and calls for revision as the TCJA’s repeal of section 958(b)(4). Section 958(b)(4) blocks downward attribution of stock ownership from foreign persons to U.S. persons for purposes of determining if a foreign corporation was a CFC. As part of TCJA, this provision was repealed so that there was downward attribution of stock to U.S. corporations. This created a slew of issues including greatly expanding the number of foreign corporations that are considered CFCs, thereby impacting filing requirements, PFIC issues, and inclusions. The impact of this repeal extended far beyond the tax regimes and structures that Congress had intended to reign in.
Consequently, there was a significant uproar in the international tax community, with many voices requesting a fix to this wide-reaching change. Under OBBB, Section 958(b)(4) is reinstated. However, the relief provided by the reinstatement is limited because, with it, OBBB introduced a new anti-deferral regime under Section 951B for “Foreign Controlled U.S. Shareholders” (FCUSS). This provision effectively negates the protection of Section 958(b)(4) where there would be a greater than 50% interest attributed through downward attribution. Section 951B does not cause the foreign corporation to become a CFC in that instance; rather, it falls into a new category—a foreign entity type referred to as a Foreign Controlled Foreign Corporation (FCFC). Certain U.S. shareholders of FCFCs, specifically the FCUSS, will have deemed inclusions under Subpart F and NCTI.
The takeaway for taxpayers will be that, though Section 958(b)(4) is reinstated, it is imperative to consider and evaluate the reach of Section 951B to rule out its relevancy on a particular structure or tax position.
Other Miscellaneous Provisions
In addition to the headliner changes described above, there are other provisions which, while narrow in application, will have a big impact on those taxpayers who will be affected:
- Section 954(c)(6), which is the Subpart F so-called “look-through rule,” has been made permanent.
- The inventory sourcing rule has been modified so that the sale of inventory produced in the U.S. can be foreign sourced up to 50%, if the taxpayer has a fixed place of business outside of the U.S.
- The Base Erosion Anti-Avoidance Tax (BEAT) rate has increased from 10% to 10.5%, effective tax years starting after December 31, 2025.
The international tax changes introduced by OBBB are significant in terms of how impactful they will be and how many taxpayers are affected by the changes. The changes are a mix of favorable and unfavorable tax provisions for taxpayers, but overall, with the reinstatement of Section 958(b)(4) and the favorable changes to NCTI, taxpayers should welcome these changes.
Implications for Tax Planning Taxpayers and their advisors should evaluate the impact of these provisions on their global tax operating structure. Through this analysis, they can identify opportunities to adjust their operating structure or global activities to achieve more tax-efficient.
Cite as “GILTI No More? And other International Tax Changes Under OBBB” DOI: https://doi.org/10.67283/4C73C510
[i] One Big Beautiful Bill Act, Public Law No. 119-21, 139 (2025), available https://www.congress.gov/bill/119th-congress/house-bill/1 retrieved May 15, 2026
