If your business operates across borders — whether you’re a United States-based multinational with foreign subsidiaries or a foreign company investing in the U.S. — the One Big Beautiful Bill (OBBB) brings significant changes you need to prepare for now.
This legislation reshapes key aspects of the international tax landscape, introducing permanent reforms that will affect how income is taxed, how deductions are calculated, and how credits are applied. The changes are not just technical — they could materially impact your effective tax rate, cash flow, and compliance obligations starting with tax years beginning after Dec. 31, 2025.
Initially, many international tax practitioners expected a straightforward extension of the 2017 Tax Cuts and Jobs Act (TCJA) framework. But the Senate Finance Committee’s draft introduced sweeping international reforms that ultimately made their way into the final bill. These changes go beyond mere extensions — they redefine core concepts and calculations that multinational businesses rely on.
Whether you’re managing global tax strategy, overseeing compliance, or planning cross-border investments, understanding these provisions is critical. Below, we break down the key changes and offer initial insights to help you assess how the international tax provisions that the OBBB has introduced could affect your business
Global Low-Taxed Income Regime
- Renamed to Net CFC Tested Income (NCTI)
- Reduced Section 250 Deduction to 40% and increased deemed paid foreign tax credits by reducing Section 960 haircut from 20% to 10%
- Eliminated Deemed Tangible Income Return (DTIR) from the calculation
- Requires direct expense allocation for FTC purposes (specifically excluding R&E and interest expense allocation to the Section 951A basket)
Initial Thoughts: Overall, the hurdle foreign effective tax rate (ETR) to be paid is 14% (up from 13.125% under pre-2026 law). That said, most companies are excess credit in the Section 951A basket, and, therefore, these changes represent a reduction in tax leakage related to not allocating interest to NCTI any longer.
Initial Thoughts: For flow-through companies and shareholders, outside of the calculation changes, there isn’t any impact on Section 962 elections as a way to reduce the NCTI tax burden.
Foreign-Derived Intangible Income Regime
- Renamed to Foreign-Derived Deduction Eligible Income (FDDEI)
- Reduced Section 250 deduction to 33.34% (taxable income limitation is still applicable)
- Exclusions from Deduction Eligible Income, including income from outbound transfers under Section 367(d) and gains from the sale of depreciable property
- Requires direct allocation of deductions to FDDEI gross income, specifically excluding R&E and interest expenses
- Eliminated the domestic Qualified Business Asset Investment (QBAI) concept within the calculation
Initial Thoughts: It is possible to have a larger deduction without the impacts of QBAI, R&E expenses, or interest expense. This is true even with the reduction to the Section 250 deduction percentage. The rate on this income is 14% (similar alignment existed between GILTI and FDII prior to these changes).
Base Erosion and Anti-Abuse Tax
- The BEAT rate was permanently set at 10.5%
- Credits against BEAT liability were preserved (e.g., R&E, low-income housing, renewable electricity production, Section 38 credits). However, foreign tax credits are still not creditable against BEAT
- Maintained the safe harbor rules
Interest Limitation (Section 163(j)
- Makes permanent the addback to ATI for amortization and depreciation
- Requires a subtraction of Subpart F, GILTI, and the associated Section 78 Gross-Up from the computation of ATI
- Specific ordering rule added where 163(j) comes before elective interest capitalization (i.e., 263A)
Initial Thoughts: The impact of using tax EBITDA instead of tax EBIT could make a large difference to the ability to deduct interest in an asset-intense business (i.e., manufacturing, etc.). When this provision expired originally, it produced significant limits on interest that were not present before.
Other International Changes
- CFC Changes: Reinstate downward attribution under Section 958(b)(4) and add Section 951B to target specific foreign-owned U.S. shareholders
Initial Thoughts: The new Section 951B will impact a number of the CFCs that would have been eliminated from the CFC rules with the reinstatement of downward attribution. Overall, companies should review their structure to determine whether CFC status has changed due to these rules.
- Permanent extension of Section 954(c)(6) exception to Subpart F related to passive-type payments between CFCs (i.e., dividends, rents, royalties)
- Sourcing Rule: Up to 50% of income from US-produced inventory sold abroad through foreign branches can be treated as foreign-source income
Initial Thoughts: This is a taxpayer-favorable rule that allows income sourced under Section 863(b) to be allocated to the foreign source/branch basket, thereby allowing for a credit. That said, the reverse whereby a branch manufacturers product and sells into the U.S. remains all foreign source still.
- Elimination of Section 898’s 1-month deferral
- Changes in the Subpart F and NCTI inclusion rules to include income based on shareholder ownership percentage throughout the year (as opposed to ownership on the last day of the year)
Your Takeaway
The key takeaways from the international provisions of the OBBB are: 1) The current administration remains committed to the current international tax framework; and 2) The bill provides permanence in rates and provisions — something the TCJA did not offer. As with the TCJA, the impact of the OBBB’s provisions can be beneficial or detrimental, depending on your company’s specific circumstances. The only way to accurately assess the effects is through a detailed modeling of each provision.
Brian Hayward serves as a firm-wide technical expert on international tax and transaction matters. He is committed to helping Rehmann’s clients navigate complex cross-border tax issues, international transactions, and compliance requirements.