On July 4, 2025, the President signed into law the “One, Big, Beautiful Bill,” a comprehensive tax reform that introduced several significant changes to the U.S. tax code. This article outlines the major international provisions of the new tax law.
Global Intangible Low-Taxed Income (GILTI)
First and foremost, Section 951A receives a new name: the well-known ‘GILTI’ will now be referred to as ‘Net CFC Tested Income’ (NCTI).
The changes are as follows:
- The deduction under Section 250 (formerly GILTI deduction) will be reduced to 40% (from 50% before).
- The eligible foreign tax credit attributable to the NCTI will increase to 90% of the taxes deemed paid (previously was 80%).
- The Qualified Business Asset Investment (QBAI) — previously allowing foreign subsidiaries to reduce tested income by 10% of qualified assets — is now fully eliminated.
- The allocation of indirect group interest and R&E expenses to the tested income basket (for purposes of the foreign tax credit) is no longer required.
- In general, the effective date of the changes above is slated to take effect for tax years beginning after December 31, 2025.
The new law effectively raises the tax rate on foreign subsidiary income included in a U.S. parent’s taxable income to 14%, up from 10.5%.
Foreign-Derived Intangible Income (FDII)
This section of the law also gets a new name. The old ‘FDII’ will now be ‘FDDEI’ (Foreign Derived Deduction Eligible Income) deduction under Section IRC 250, with a reduction in its rate to 33.34% (from 37.5% before).
The changes are as follows:
- The law modifies the mechanism of allocation of expenses against the foreign-derived deduction eligible income by specifically excluding interest expense and research and experimental expenditures.
- As a favorable adjustment, the law repeals the reduction in FDDEI for the deemed return on qualified business asset investment (QBAI), similar to the GILTI provision. (This may also simplify compliance for tax preparers by slightly reducing the workload.). These changes are effective for tax years beginning after 2025.
- The bill would exclude from the FDDEI income classification income or gain from the Section 367(d) disposition of intangible property or property subject to depreciation, amortization, or depletion.
- The new exclusion will take effect for sales after June 16, 2025.
Like NCTI, the new FDDEI creates an effective tax rate of 14% for U.S. corporate taxpayers who derive operating income from foreign customers.
Base Erosion and Anti-Abuse Tax (BEAT)
The BEAT rate is increased from 10% to 10.5% (was scheduled to go up to 12.5%) for tax years beginning after 2025. The rest of the BEAT rules remain generally intact.
Reciprocal Tax for ‘Unfair Foreign Taxes’
In a big sigh of relief for Wall Street and foreign companies doing business in the U.S., the final bill omits the proposed Section 899, which would have imposed retaliatory taxes on residents of countries that impose “unfair foreign taxes.” This provision was removed after the Trump administration reached an agreement with the G-7 countries to exempt U.S. businesses from Pillar Two taxes.
Remittance Tax
The new law imposes a 1% excise tax on remittances of cash, money orders, cashier’s checks, or other similar physical instruments. However, transfers from most financial institution accounts or debit cards are exempt from this tax.
Other International Provisions
Several other international provisions are included in the law, effective for tax years beginning after December 31, 2025. These include:
- Making permanent the controlled foreign corporation (CFC) look-through under Section 954(c)(6)
- This is an important aspect of planning for Subpart F inclusions.
- Restoring the exception from downward attribution rules under Section 958(b)(4)
- This is welcome news, as many taxpayers were surprised by the reporting requirements and tax implications that resulted from the repeal of Section 958(b)(4) under the TCJA.
- However, the new law establishes new Section 951B which takes a more surgical approach to stop the perceived abuse originally behind the TCJA repeal of the exception of downward attribution.
- Amending the FTC rules to treat up to 50% of inventory produced in the U.S. and sold through foreign branches as foreign-source income.
- Amending the pro-rata allocation rules under GILTI and Subpart F (to mimic more closely the U.S. pass-through business ownership rules).
The above summary provides an initial overview of the new tax law’s international provisions and their potential impact on our clients. Ongoing analysis and future guidance from the IRS and Treasury may lead to updates to the views expressed in this article. Please contact your WG tax advisor if you have any questions or concerns.
