Major changes are here for US multinational companies, thanks to the One Big Beautiful Bill Act. The law has overhauled how foreign corporate income is taxed, most notably by rewriting the old GILTI (Global Intangible Low-Taxed Income) regime. Here’s what you need to know.
What Happened to GILTI?
The Act makes sweeping changes:
·
GILTI is now called Net CFC Tested Income (NCTI). The old name focused narrowly on intangible income; the new
framework casts a wider net, making more foreign profits taxable in the US.
·
The 10% Tangible Asset Exclusion (QBAI) is gone. Previously, a company could exclude a 10% return on its
tangible foreign assets from GILTI, shielding some profits. That carve-out is
eliminated. All of a controlled foreign corporation’s net income now counts for
NCTI.
How Did the Effective Tax Rate Change?
Here’s a comparison of the GILTI/NCTI regime before and
after the Act:
|
Old Law
(2025) |
Act
(2026+) |
Tangible
Asset Exclusion (QBAI) |
10%
exclusion |
Eliminated |
Deduction
(% of GILTI/NCTI) |
37.5% |
40% |
Foreign
Tax Credit (FTC) Haircut |
20% |
10% |
Effective
US Tax Rate |
13.125% |
12.6% |
·
The
Section 250 deduction is set at 40% for NCTI (was going down to 37.5%). This
means less of the income is deducted, raising the taxable amount but not as
much as was previously scheduled.
·
US
companies can now credit 90% of foreign taxes paid (a 10% haircut), instead of
80%. This lowers the risk of double-taxation.
·
For most
structures, if a CFC pays at least a 14% effective foreign rate, there should
be no extra US tax at the NCTI level.
What’s the Practical Impact?
·
More Overseas Profits Are Taxed in the US. With no more QBAI exclusion, any US parent with substantial
tangible assets abroad (factories, equipment) now sees significantly more of
its foreign profits counted in US taxable income.
·
Slightly Higher US Tax Burden, Offset by Better Credits. While more income is exposed, some relief comes from the
better FTC allowance and a deduction set higher than previously scheduled.
·
Major Strategic Reassessment Needed. Previous planning strategies, especially relying on tangible
property overseas to shield profits, are now much less effective. Tax
departments must model the new rules’ impact for any subsidiaries in lower-tax
jurisdictions.
What Should US Multinationals Do Next?
·
Review
global structures and the effective foreign rates of all subsidiaries.
·
Update
tax forecasts, especially for CFCs with low foreign effective tax rates.
·
Prepare
for a potentially larger US tax bill on previously shielded income streams.
·
Consider
new structures and planning opportunities to minimize overall group tax.
While the Act has closed off certain planning techniques, it
also attaches more certainty and clarity to the US international tax regime.
Companies should prioritize analyzing these rule changes well before the new
rules take effect, ensuring they remain compliant and tax-efficient in the new
environment.
or Toll Free at 888-8TaxAid (888) 882-9243
Sources:
1.
https://www.mayerbrown.com/en/insights/publications/2025/07/one-big-beautiful-bill-act-introduces-significant-domestic-and-international-tax-changes
2.
https://www.stinson.com/newsroom-publications-one-big-beautiful-bill-explained
3.
https://www.bilzin.com/insights/publications/2025/07/international-tax-changes-in-obba
4.
https://www.dechert.com/knowledge/onpoint/2025/7/tax-reform-2025--the-one-big-beautiful-bill-act-signed-into-law.html