Top International Tax Issues Impacted by the One Big Beautiful Bill Act

Interviewer: How does OBBBA modify the treatment of global intangible low-taxed income (GILTI), which in the new law is rebranded as “net CFC tested income” or NCTI, including deductions and foreign tax credit limitations?

Dewendt: For the most part, the changes to GILTI—now NCTI―are largely positive, with a few significant exceptions.

Most of the international provisions that were first introduced under the Tax Cuts and Jobs Act (TCJA) were scheduled to become less favorable or be subject to rate increases starting in 2026. What OBBBA changed, for the most part, was to reduce the rate increases or make slight changes to how the calculation works. However, even though the changes may seem minor, they can have a significant impact for taxpayers depending on their specific tax profiles.

One of the most impactful changes to GILTI relates to the Section 250 deduction. It’s been permanently reduced from 50 to 40%, which lowers the effective tax rate from 13.125 to 12.6%.

Another significant change relates to the foreign tax credits. Previously, 80% of foreign income taxes paid or accrued by a controlled foreign corporation or CFC outside the United States could be used to offset the GILTI tax liability. Now, that offset has increased to 90%, so taxpayers can take a larger foreign tax credit, which is a very welcome change.

On the other hand, the main negative change from the GILTI/NCTI adjustments that OBBBA made is the elimination of the qualified business asset investment (QBAI) reduction, which was a fixed rate of return on fixed assets that reduced the GILTI inclusion. Prior to OBBBA, you would only include in GILTI income above a 10% return on your fixed assets. Now, that 10% return exclusion is gone. So any company that is asset intensive, such as a manufacturing company, won’t be able to offset its NCTI inclusion with a return on those assets anymore, which could significantly increase its NCTI liability or create one for the first time.

Interviewer: So basically this is like a worldwide tax on your worldwide income with reductions for the amount of inclusion and offset with the credits?

Dewendt: Yes, exactly. NCTI is an antideferral regime that applies to foreign corporate subsidiaries. Instead of deferring income until a dividend is paid, companies are taxed on foreign earnings in the year those earnings are realized.

Interviewer: The original Foreign-Derived Intangible Income (FDII) regime is replaced (or renamed) under OBBBA to Foreign-Derived Deduction Eligible Income (FDDEI). What rate changes, deductions, and limitations are introduced for FDDEI under the new legislation?

Dewendt: It’s a big, welcome change―mostly positive. FDDEI is an export incentive that applies to U.S. corporations that export goods and services from the U.S. Prior to OBBBA, the rate on the income related to these exports was going to increase from an effective tax rate of 13.125 to 16.4%. After OBBBA, the rate has been permanently set at 14%.

When FDII was first introduced under TCJA, many companies were hesitant to plan around it because of its temporary nature or fear of being repealed. Now that FDDEI is permanent, it opens the door for meaningful planning opportunities. Companies can reduce their export-related tax rate from 21 to 14%.

Two other major improvements related to FDDEI are the following: first, taxpayers don’t have to allocate interest expense and research and development (R&D) activities to FDDEI going forward, which is likely going to increase the FDDEI benefit for a lot of taxpayers, particularly those that are highly leveraged or have a lot of R&D expenditures. The second improvement is the elimination of QBAI for FDDEI purposes. This is especially beneficial for asset-intensive exporters who previously couldn’t benefit from FDII. Starting in 2026, many of these companies will see a significant boost from FDDEI.

Interviewer: What amendments does OBBBA make to the Base Erosion and Anti-Abuse Tax (BEAT) regime, and how do they affect inbound and outbound cross-border transactions?

Dewendt: Unlike the proposed bills, the final bill under OBBBA didn’t include many changes to the BEAT regime other than permanently adjusting the BEAT rate, which was set to increase from 10 to 12.1% in 2026. The rate has been permanently set at 10.5% starting next year.

The biggest impact I see for BEAT is the interaction with 163(j), which isn’t an international provision per se but has major implications. Previously, the 163(j) interest deduction limitation was calculated using EBIT. Under the new rules, the deduction shifts back to EBITDA, allowing for a larger deduction. Companies with large interest expense deductions to foreign-related parties may see their BEAT liability increase because of this change. We expect to see increased planning around intercompany financing.

Interviewer: How might the changes to GILTI/NCTI and FDDEI affect the competitiveness of U.S. multinationals compared to foreign-headquartered rivals?

Dewendt: These changes are generally favorable for U.S. multinationals, but the impact will vary based on each company’s specific tax profile. Whether they are asset intensive, whether they have exports from the U.S., or whether they have intercompany financing arrangements, all those factors will impact the results of OBBBA. However, in most cases, OBBBA should help decrease their U.S. tax liability and make them more competitive. But the key is modeling. Companies need to model the different scenarios to understand how these changes affect them and identify planning opportunities.

One strategy we’re already discussing is moving IP back to the U.S. and selling to foreign customers from a U.S. entity to take advantage of the FDDEI deduction. FDII has been around since 2017, but now that FDDEI is permanent, it’s a great time to revisit that planning.

Ultimately, the most prudent step is to model the changes, understand the impact, and explore the planning opportunities that make the most sense for each business.

Interviewer: Gaby, thank you for your explanations and insightful comments. Of course, Gaby and her international tax colleagues at Ryan are available to assist with scenario modeling and planning. Please reach out to Gaby to get started.

Please see the following links for on-demand access to Ryan’s OBBBA webinars:

• Decoding the “One, Big, Beautiful Bill”: What Businesses Need to Know Now
• Best Practices in Optimizing Income Tax Deductions in the One, Big, Beautiful Bill
• Best Practices in Optimizing Credits and Incentives in the One, Big, Beautiful Bill

Contact Ryan’s international tax expert below to navigate the complexities of OBBBA and uncover strategic opportunities for your business.

Contact:
Gaby Dewendt
Director
Ryan
gaby.dewendt@ryan.com