The One Big Beautiful Bill Breakdown: International Tax Provisions
The One Big Beautiful Bill (OBBB) makes several important changes to the international tax provisions originally enacted under the 2017 Tax Cuts and Jobs Act (TCJA). Many of these provisions were scheduled to expire or change significantly in 2026. The OBBB not only prevents those changes but also introduces new rules that will impact the effective tax rates of U.S. multinational corporations.
GILTI (Global Intangible Low-Taxed Income)
The Previous Tax Law
Under the TCJA, GILTI is income earned by controlled foreign corporations (CFCs) in excess of 10% of the CFC’s tangible assets.
U.S. shareholders are subject to GILTI inclusions in their taxable income. Domestic corporations are allowed a Section 250 deduction of 50% on GILTI income, resulting in an effective tax rate of 10.5%. Starting in 2026, the deduction was scheduled to reduce to 37.5%, raising the effective tax rate to 13.125%.
New and Final Law Under the One Big Beautiful Bill
GILTI is renamed to Net CFC Tested Income (NCTI), and the 10% tangible property exclusion is removed. Additionally, the Section 250 deduction is “permanently” lowered to 40%, resulting in a 12.6% effective U.S. tax rate (based on a 21% corporate rate).
FDII (Foreign-Derived Intangible Income)
The Previous Tax Law
Under the TCJA, domestic corporations that export property or services are allowed a Section 250 FDII deduction of 37.5%, reducing the effective tax rate to 13.125%. This deduction was scheduled to reduce to 21.875% in 2026, increasing the effective rate to 16.406%.
New and Final Law Under the One Big Beautiful Bill
FDII is renamed Foreign-Derived Deduction Eligible Income (FDDEI) and narrowed in scope, excluding certain income from intangibles and depreciable property. The Section 250 deduction for FDDEI is now set at 33.34%, resulting in a 14% effective tax rate.
BEAT (Base Erosion and Anti-Abuse Tax)
The Previous Tax Law
BEAT applies to large corporations with gross receipts of $500 million or more. It is intended to prevent large multinational corporations from shifting profits outside of the U.S. by deducting payments made to foreign affiliates and subsidiaries.
BEAT operates much like a minimum tax and applies a 10% tax rate on a modified taxable income that includes these base erosion payments for when they exceed a 3% base erosion percentage threshold. This rate was scheduled to increase to 12.5% in 2026 along with the elimination of certain U.S. tax credits included in the BEAT calculation.
New and Final Law Under the One Big Beautiful Bill
The BEAT tax rate is “permanently” increased to 10.5% for tax years starting in 2026. Further, the favorable treatment of certain U.S. tax credits is also “permanently” included in the BEAT calculation, which were previously scheduled to expire.
What It Means for You
The One Big Beautiful Bill modifies the international tax landscape by locking in some scheduled changes and reversing others, but it maintains overall consistency in the current international tax landscape.
While effective tax rates on NCTI (formerly GILTI), FDDEI (formerly FDII), and BEAT are rising, the bill softens the impact by limiting how sharply those rates rise.
To learn more about how the One Big Beautiful Bill and this specific provision may impact you, contact your Warren Averett advisor.
