The One Big Beautiful Bill Act of 2025 (OBBBA) represents the most significant overhaul of U.S. international tax rules since the Tax Cuts and Jobs Act (TCJA) of 2017.
Below is a comprehensive overview of 6 key changes to the international tax rules under the OBBBA, with a focus on foreign companies, anti-deferral regimes, and cross-border business structuring.
1. GILTI Replaced by Net CFC Tested Income (NCTI)
The first major change is relevant for U.S. persons that own or hold interests in controlled foreign corporations (CFCs).
The OBBBA replaces the Global Intangible Low-Taxed Income (GILTI) regime with a new “Net CFC Tested Income” (NCTI) regime for taxable years beginning after December 31, 2025.
The NCTI regime simplifies the calculation by eliminating the need to compute the “qualified business asset investment” (QBAI) deduction, which previously allowed a deemed return on tangible assets to be excluded from GILTI. Now, all net CFC tested income is subject to potential deemed inclusions, regardless of the asset mix, making the regime more straightforward but also potentially broader in scope.
2. Changes to NCTI (Formerly GILTI) and FDII Rates
Beginning in 2026, the effective tax rate on NCTI is increased to 12.6% (from 10.5% under GILTI), achieved by reducing the Section 250 deduction from 50% to 40%. Additionally, the percentage of foreign taxes that can be credited against NCTI inclusions is increased from 80% to 90%.
On the flipside to NCTI, foreign-derived intangible income (FDII) generated by domestic corporations is currently subject to tax at an effective tax rate that is just over 13.1% (and the effective rate had been scheduled to increase to 16.4% beginning in 2026). However, the new law instead permanently resets the effective FDII rate at 14%, also beginning in 2026.
3. Broadening Subpart F Shareholder Inclusion Rule
The Subpart F inclusion rules are amended to require U.S. shareholders to include Subpart F income if they own CFC stock on any day during the CFC’s taxable year, rather than only at year-end.
This change broadens the scope of Subpart F inclusions and closes certain planning opportunities.
4. Subpart F and CFC Attribution Rules
The OBBBA reinstates Section 958(b)(4), which prevents “downward attribution” of stock from foreign persons to U.S. persons for purposes of determining CFC status.
This reverses a TCJA change that had led to unintended CFC designations in certain structures.
5. Section 954(c)(6) Made Permanent
Section 954(c)(6), which allows for the exclusion of certain inter-CFC dividends, interest, rents, and royalties from Subpart F income, is made permanent by the OBBBA.
This provision, previously extended on a temporary basis, now provides greater certainty for cross-border planning.
6. Repeal of the One-Month Deferral Election for CFCs
Section 898(c)(2), which allowed certain CFCs to elect a taxable year beginning one month earlier than their majority U.S. shareholder, is repealed for taxable years beginning after November 30, 2025.
Affected CFCs must now align their taxable year with their majority U.S. shareholder, and transitional rules govern the allocation of foreign income taxes between short and full taxable years.
Conclusion
The OBBBA’s international tax changes are far-reaching and complex, affecting the calculation of U.S. tax on foreign earnings, the treatment of CFCs, and the availability of foreign tax credits, among others.
Taxpayers with cross-border operations should carefully review the new rules and monitor ongoing regulatory guidance as the OBBBA is implemented.
