On 4 July, US Independence Day, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The international provisions of the OBBBA are mostly unremarkable. They primarily extend provisions that would have expired or changed for 2026 tax years. We describe here some of the key international provisions.
GILTI à Net CFC Tested Income Regime
The global intangible low-taxed income regime (GILTI) is renamed the “net CFC tested income” (“NCTI”) regime. It requires US shareholders to include in taxable income their pro rata shares of certain non-US companies “net CFC tested income”. Absent a change in law, the US rate would have increased from a maximum of 10.5 percent to 13.125 percent. The OBBBA adopts a maximum rate of 12.6 percent, but reduces the impact of that rate increase by increasing the extent to which US shareholders typically can use foreign tax credits to offset the US tax. The OBBBA also causes the NCTI regime to apply not only to “intangible” income, but to any type of income earned by the foreign corporation.
FDII to Foreign-Derived Deduction-Eligible Income Regime
The foreign-derived intangible income regime (FDII) is renamed ‘foreign-derived deduction-eligible income” (“FDDEI”) regime. It allows US shareholders to pay a reduced rate of US income tax on certain income derived from foreign markets. Three key changes were made to the regime: (1) its rate was increased from 13.125 percent to approximately 14 percent, a rate that was scheduled to increase to 16.04 percent for 2026 and later tax years; (2) as with the NCTI regime, that rate applies not only to “intangible” income derived from foreign markets, but to any type of income; and (3) income from transfers of IP to foreign persons is no longer eligible for the reduced rate.
The BEAT
The Base Erosion and Anti-Abuse Tax (BEAT) requires US companies to pay additional tax on certain payments to foreign companies. It operates as an alternative to the regular US corporate income tax system and applies only if the BEAT exceeds regular US corporate income tax. It also generally applies only to companies with US revenue in excess of $500 million. The OBBBA increases the tax rate from 10 percent to 10.5 percent.
New Tax on Remittances from US Persons to Certain Foreign Persons
The OBBBA imposes a 1% tax on transfers of cash (e.g., made by check or money order) by US persons to foreign persons. The final provision is significantly less impactful than an earlier proposal; specifically, the rate is reduced (from 5%) and transfers made with funds withdrawn from certain listed financial institutions or funded with a U.S.-issued debit or credit card are excluded.
No Revenge Tax
The OBBBA does not include section 899, which would have penalized taxpayers from foreign countries that impose Pillar Two style top-up taxes by increasing US income tax rates on their income. The provision was dropped after the US Treasury Department negotiated exceptions to Pillar Two taxes for US companies. The United States may have had second thoughts about the provision after public comments suggested it could discourage foreign direct investment in the United States. One could argue that the provision achieved its desired effect by ensuring at least some foreign countries dropped their Pillar Two taxes on US companies. However, the idea of a revenge tax is still being floated in Congress (as of today’s date) because some countries may move forward with Pillar Two taxes against US companies.
