International Tax Changes in the Big Beautiful Bill

By Jiten Kariya July 11, 2025

Note:  This article is one of many that BNN is publishing to cover the tax features of the so-called “Big Beautiful Bill.”  Each one is authored by one of BNN’s own tax professionals.  Our coverage includes a summary article that briefly describes many of the bill’s features and many more that are deeper dives into specific areas of interest to our clients.  A topical list of those in-depth articles may be found at the front of our summary article .

On May 22, 2025, the House of Representatives passed H.R. 1 (“House Bill”), the budget reconciliation bill titled the ‘One Big Beautiful Bill Act.’ The Senate approved its amended version of H.R. 1 (“Senate Bill”) on July 1, 2025, introducing several changes. On July 3, 2025, the House agreed to the Senate’s version without further amendments, clearing the bill for the President. President Trump signed the bill into law on July 4, 2025, marking the occasion with a symbolic Independence Day signing.  This article discusses the important additions/changes in the international tax provisions introduced through the bill.

A. Global-intangible low-taxed income (“GILTI”) Modifications

Renaming GILTI & elimination of net deemed tangible income return (“NDTIR”): Instead of GILTI inclusion, U.S. shareholders of controlled foreign corporations (“CFC”) would include net CFC tested income in their income, and the term ‘GILTI’ would be replaced with ‘net CFC tested income’ (“951A income”) throughout the Internal Revenue Code (“Code”). It eliminates the NDTIR from the computation of 951A income. It would be applicable to taxable years beginning after Dec. 31, 2025.

Observations: (1) Although the removal of net deemed tangible income return from the computation simplifies the calculation of 951A income, the U.S. shareholders of capital-intensive CFCs who historically may have been able to avoid an additional tax on GILTI may now be subject to additional tax on 951A income. (2) U.S. individuals who fall within the definition of U.S. shareholder may now want to analyze the possibility of a §962 election.  (3) The removal of NDTIR would eliminate the associated untaxed earnings & profits, thereby disqualifying those earnings from the 100% dividends received deduction under §245A upon future distribution. 

Permanent increase of post-2025 951A income deduction to 40%: The deduction under §250 for §951A income will permanently increase to 40% (compared to 49.2% in the House Bill) for taxable years beginning after Dec. 31, 2025.

Observation: This will result in an effective tax rate of 12.6%, compared to 10.67% under the House Bill. However, it remains more favorable to taxpayers than the 13.125% effective tax rate that would have applied under current law after the 2025 tax year.

Deemed paid foreign tax credit increased to 90%: The deemed paid foreign tax credit (“FTC”) attributable to 951A income will increase from the current 80% to 90%, effective for taxable years beginning after December 31, 2025. The House Bill did not propose any changes to this percentage. Additionally, a 10% disallowance will apply to any foreign income taxes paid, accrued, or deemed paid with respect to distributions of previously taxed 951A income.

Observation: With the foreign tax credit for 951A income increased to 90%, U.S. shareholders of CFCs generally will not owe additional U.S. tax on such income if it is subject to a foreign effective tax rate of at least 14%.

Expense Apportionment: For purposes of the foreign tax credit limitation, expenses allocable to §951A income will be limited to: (i) the deduction under section 250(a)(1)(B)—which is 40% for tax years beginning after 2025—and (ii) other expenses that are directly attributable to such income. No portion of interest expense or research and experimental (“R&E”) expenditures would be allocated to §951A income. This change will be applicable to taxable years beginning after Dec. 31, 2025.

Observation: This change simplifies the foreign tax credit calculation and enhances the creditability of deemed paid foreign taxes related to 951A income. Additionally, any interest expense, R&E expenditures, or other deductions that would have otherwise been allocated 951A income must now be allocated solely to U.S.-source income. As a result, these amounts are no longer reallocated to other foreign income categories under section 904, which further improves the efficiency of FTC utilization.

B. Foreign-Derived Intangible Income (“FDII”) Modifications

Renaming FDII Deduction & elimination of deemed tangible income return (“DTIR”):  In line with the repeal of the NDTIR exclusion for GILTI, the bill also eliminates the QBAI-based deduction (known as DTIR) from the FDII calculation. As a result, the FDII deduction would be simplified to equal a taxpayer’s foreign-derived deduction eligible income (“FDDEI”) multiplied by the FDII rate—currently 37.5% but reduced to 33.34%. Additionally, the term ‘FDII’ deduction will now be referred to as ‘FDDEI’ deduction. It would be applicable to taxable years beginning after Dec. 31, 2025.

Observation: With the removal of the QBAI limitation, more corporate taxpayers may now be better positioned to take advantage of the expanded FDDEI deduction.

Definition of Deduction Eligible Income (“DEI”): The bill modifies the definition of DEI to exclude any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d) of any intangible property (as defined in section 367(d)(4)) and any other property of a type that is subject to depreciation, amortization or depletion of the seller. These exclusions are in addition to the previously existing specified exclusions. It applies to sales or dispositions occurring after June 16, 2025.

Observation: This change will disqualify a domestic corporation’s transfer of any intangible property to foreign entities, including its CFCs, from being eligible for the FDDEI deduction.

Permanent increase of post-2025 FDDEI deduction to 33.34%: The FDDEI deduction would be permanently set at 33.34% for tax years beginning after December 31, 2025 — an increase from the previously scheduled reduction to 21.875%.  

Observation: The effective tax rate on qualifying FDDEI transactions for tax years beginning after 2025 would be reduced to 14%, down from the previously scheduled rate of 16.406%.

Expense Apportionment: The rules for allocating and apportioning expenses to DEI are revised to include only those deductions that are directly attributable to such income. This change eliminates the requirement to allocate apportioned expenses (such as interest and R&E) against DEI when calculating the FDDEI deduction. It would be applicable to taxable years beginning after Dec. 31, 2025.

Observation: By limiting expense allocation to only directly related deductions, the new rules exclude categories such as interest, stewardship, and R&E expenses from being applied to DEI. Combined with the elimination of the DTIR exclusion, these changes make the FDDEI deduction more favorable for U.S. domestic corporations. However, the FDDEI deduction would still be subject to the taxable income limitation of section 250(a)(2).

C. Base Erosion and Anti-Abuse Tax (“BEAT”) Modifications

The BEAT rate would be permanently reduced to 10.5%, compared to the 10.1% rate proposed in the House Bill, and lower than the currently scheduled increase to 12.5%. An 11.5% rate applies to banks and certain securities dealers for tax years beginning after December 31, 2025.

Additionally, the current treatment of certain tax credits (such as the R&D credit) is maintained by ensuring that ‘regular tax liability’ for BEAT purposes is not reduced by these credits, thereby avoiding a scheduled change that would have otherwise increased BEAT liability.

Observation: The continuation of favorable treatment for certain tax credits would be a meaningful benefit for affected taxpayers, particularly those with substantial R&D credits who might otherwise have faced higher BEAT liability without this extension.

D. Sourcing Rule for Inventory Produced in the U.S. and Sold Through Foreign Branches

For purposes of the FTC limitation, income from the sale of inventory produced in the United States but sold and used outside the U.S. shall be treated as foreign-source income to the extent it is attributable to the U.S. person’s foreign office or fixed place of business. However, the amount treated as foreign source is limited to no more than 50% of the income from the sale of such inventory property. This will be applicable to taxable years beginning after Dec. 31, 2025.

Observation: This rule could benefit taxpayers that manufacture inventory exclusively in the U.S. but conduct sales through a foreign branch or disregarded entity, allowing a portion of the income to be treated as foreign-source for FTC purposes.

E. Other International Tax Changes

Extension of CFC look-thru rule: The look-thru rule under §954(c)(6), which exempts certain dividends, interest, rents, and royalties received from related CFCs from being treated as foreign personal holding company income under subpart F, is made permanent. This will be applicable to taxable years of foreign corporations beginning after Dec. 31, 2025.

Repeal of Election For 1-Month Deferral under §898 of Taxable Year of CFCs: All CFCs are required to adopt the taxable year of their majority U.S. shareholder tax year. This provision will apply to CFCs with taxable years beginning after Nov. 30, 2025. The Secretary shall issue regulations or other guidance for allocating impacted foreign taxes that are paid or accrued.

Reintroduction of §958(b)(4) to avoid downward attribution with an exception of §951(b): The restoration of Section 958(b)(4) reverses the Tax Cuts and Jobs Act’s (“TCJA”) expansion of ‘downward attribution,’ which had caused many foreign corporations, especially within foreign-parented groups, to be classified as CFCs for U.S. tax purposes. By reinstating §958(b)(4), it once again limits the circumstances in which a U.S. subsidiary is treated as constructively owning CFC stock held by its foreign parent, thereby materially reducing the number of foreign corporations treated as CFCs and alleviating the unintended compliance and tax consequences that arose from the TCJA’s repeal. At the same time, a new Section 951B is introduced, which establishes a parallel Subpart F regime specifically for ‘foreign-controlled foreign corporations’—those foreign corporations that would be CFCs if downward attribution were still permitted. This provision targets the ownership structures that initially motivated the TCJA’s repeal of Section 958(b)(4), ensuring that certain foreign subsidiaries within foreign-parented groups remain subject to Subpart F rules, but in a more focused and limited manner than the broad approach taken by the TCJA. It will be applicable to taxable years beginning after Dec. 31, 2025.

Modification to Pro Rata Share Rules: The rules for allocating subpart F and 951A income are revised so that any U.S. shareholders who own stock in a CFC at any time during the tax year, and not just those holding shares on the last day of the year, must include their shares of the CFC’s subpart F and 951A income. For section 956 inclusions, the rule remains that only U.S. shareholders holding stock on the last day of the tax year are subject to inclusion. This will be applicable to taxable years of foreign corporations beginning after Dec. 31, 2025.

Section 174:   While immediate expensing for domestic R&E is reinstated, foreign R&E expenditures remain subject to the existing rule requiring capitalization and amortization over a 15-year period.

Redefining Adjusted Taxable Income (“ATI”) for §163(j): The ATI computation is modified by having specific exclusion of 951A income, Subpart F income, and §78 gross-up. This will be applicable to taxable years beginning after Dec. 31, 2025.

Observation: The modification to ATI computation could remove a significant benefit for U.S. shareholders with CFC group elections under current regulations.

Section 78: U.S. shareholders that are domestic corporations receiving distributions of previously taxed income (otherwise known as PTEP) will no longer include a Section 78 gross-up in income for the foreign taxes related to the PTEP distributions. This is effective for tax years beginning after December 31, 2025.

Remittance Tax: Section 4475 is introduced, which imposes a 1% excise tax (compared to 5% under the House Bill) on all remittance transfers. The tax is limited to remittance transfers funded by cash or similar physical instruments, explicitly exempting transfers funded by withdrawals from certain financial institutions or by debit/credit cards. This narrows the scope of taxable transfers compared to the House Bill, which exempts only transfers by verified U.S. citizens through qualified providers. It shall apply to transfers made after December 31, 2025.

Observation: This reflects a more targeted and lower-rate approach to taxing remittance transfers, focusing on cash and similar instruments while exempting electronic and card-based transfers. It simplifies the tax structure by removing the tax credit and detailed reporting requirements found in the House Bill. This approach may reduce compliance burdens and better align the tax with cash-based remittance activities. It is likely to have a less significant financial impact on remittance senders, especially those using non-cash methods.

Removal of section 899: The House’s proposed Section 899, which would have imposed higher tax rates on certain taxpayers linked to countries with so-called “unfair taxes”—such as the undertaxed profits rule (UTPR), digital services taxes (DSTs), and diverted profits taxes (DPTs)—has been removed. Additionally, the Super BEAT rules, which would have targeted U.S. companies with majority ownership by residents of countries with unfair tax regimes, will no longer apply. This change follows Treasury Secretary Scott Bessent’s announcement that the United States has reached an agreement with G7 nations to exempt U.S. companies from the Organisation for Economic Co-operation and Development’s (OECD) Pillar 2 taxes.

Conclusion

The international tax provisions included within the Big Beautiful Bill mark a sweeping recalibration of U.S. cross-border tax policy. From the permanent extension of key provisions to the nuanced modifications of GILTI, FDII, and BEAT, the legislation requires taxpayers with cross-border activities to reassess their tax profiles, compliance obligations, and long-term strategy and planning.

For more information, please contact your BNN tax service provider at 800.244.7444.