Formerly known as the One Big Beautiful Bill Act, the Act (Public Law No. 119-21) passed on July 4, 2025, ushers in one of the most significant overhauls of U.S. international tax policy since the Tax Cuts and Jobs Act of 2017. With reforms that recalibrate Global Intangible Low-Taxed Income (GILTI), Foreign-Derived Intangible Income (FDII) and Base Erosion and Anti-Abuse Tax (BEAT), the Act carries far-reaching implications for multinationals.

This article breaks down the key international provisions of the Act, providing insight into what has changed, what was left untouched, and interprets the strategic impact of the reforms for multinationals.

GILTI Becomes NCTI

The Act renames GILTI to Net CFC Tested Income (NCTI), effective for tax years beginning after December 31, 2025. But this shift goes beyond branding.

Key Changes

• The Section 250 deduction is reduced from 50% to 40%
• Net Deemed Tangible Income Return (NDTIR) is repealed
• The effective U.S. tax rate on NCTI rises to 12.6%

Interpretation

The repeal of NDTIR ends preferential treatment for foreign tangible investment and subtly encourages investment in U.S.-based operations. Previously, multinationals with Controlled Foreign Corporations (CFCs) owning foreign factories or infrastructure received a benefit for tangible asset returns. That cushion is now gone. All foreign income faces equal scrutiny under NCTI.

Strategic Impacts

1. Erosion of Foreign Asset Incentives: Instead of favoring global deployment of capital, the new NCTI regime sends a subtle message: bring your factories and infrastructure back home or be prepared to pay more to keep them offshore. This hits capital-intensive sectors the hardest: industrial manufacturing, energy, and transportation.
2. Jurisdictional Tax Optimization Pressure: With higher U.S. residual tax, operating in low-tax jurisdictions (e.g., Ireland or Singapore) may become less advantageous. In contrast, high-tax jurisdictions (e.g., Germany and Japan) gain appeal, offering greater Foreign Tax Credit (FTC) utilization and more efficient offset of U.S. tax liability.

FDII Reimagined as FDDEI

FDII is rebranded as Foreign-Derived Deduction Eligible Income (FDDEI), effective for tax years beginning after December 31, 2025. But the transition also brings substantive structural changes to the regime.

Key Changes

• The Section 250 deduction is fixed at 33.34%, resulting in a 13.9986% effective U.S. tax rate
• No more Deemed Tangible Income Return (DTIR) reduction
• The definition of Deduction Eligible Income (DEI) is revised to:
  • Exclude gains from the disposition of intellectual property (IP) or depreciable/ amortizable assets after June 16, 2025 - even if the buyer is a foreign person using the IP abroad
  • Remove interest and research and experimental (R&E) expenses from deductions allocable to DEI

Interpretation

FDDEI removes the penalty for having tangible assets in the U.S., leveling the field for manufacturers and service providers. The removal of interest and R&E expenses from deductions allocable to DEI effectively increases the FDDEI base, thereby incentivizing domestic innovation and investment. However, the reduced FDDEI rate shrinks the overall deduction.

Strategic Impacts

1. Increased FDDEI Base via Expense Allocation Reform: Makes it more beneficial to perform R&E in the U.S., where those expenses can be deducted separately while still preserving the export incentive.
2. Weaker IP Incentives for U.S. IP Monetization via Disposition: Reduces the tax efficiency of developing IP in the U.S. intended for sale, potentially prompting companies to shift IP ownership to jurisdictions with more favorable tax treatment.

BEAT 2.0

BEAT, initially introduced to curb profit shifting by large multinationals through deductible payments to foreign affiliates, remains in place with modest revisions, effective for tax years beginning after December 31, 2025.

Key Changes

• The BEAT rate is fixed at 10.5%. This cancels the prior plan to increase to 12.5%
• The 2026 changes are repealed that would have:
  • Denied the use of R&D, clean energy, and low-income housing credits to offset BEAT liability
  • Broadened the definition of base erosion payments, potentially capturing payments for cost of goods sold (COGS), capitalized expenses that would have been deductible if expensed, and payments subject to foreign tax but at low rates

Interpretation

The fixed rate of 10.5% and renewed credit eligibility offer predictability and planning stability, reinforcing a more nuanced approach to international tax enforcement - one that discourages base erosion without penalizing productive, credit-generating investments.

Strategic Impacts

1. Planning Stability: Retention of the 3% base erosion percentage (2% for banks and certain financial institutions) and preserved credit usage makes the regime more predictable and provides greater certainty for long-term planning and investment in credit-generating activities.

Improved FTC Utilization

The Act introduces several favorable changes to the FTC rules, enhancing the ability for multinationals to utilize credits, notably in the NCTI (formerly GILTI) category, effective for tax years beginning after December 31, 2025.

Key Changes

• The limitation on deemed-paid foreign taxes drops from 20% to 10%, enabling multinationals to reclaim a larger portion of foreign taxes paid by their CFCs
• Expenses allocable to NCTI category income are limited to: 1. the Section 250 deduction for the NCTI inclusion, 2. certain state and local taxes 3. directly allocable deductions. All other deductions, including interest and R&E expenses, that would have been allocated to NCTI for FTC purposes are instead allocated to US source income. This shift increases the amount of credit that can be utilized within the NCTI category
• Up to 50% of income from U.S.-produced inventory sold abroad via a foreign branch or fixed place of business may now be treated as foreign-source income

Interpretation

The revised expense apportionment and updated sourcing rules allow multinationals to better align their foreign earnings with credit recovery, while the haircut reduction boosts usable credits.

Strategic Impacts

1. More FTC, Less Residual U.S. Tax: Increasing the deemed-paid percentage from 80% to 90% means multinationals operating in high-tax jurisdictions (e.g., Japan, France, Brazil) can reclaim a larger portion of foreign taxes - lowering their effective U.S. tax on NCTI.
2. Exporters Gain Access to FTC Capacity: The updated sourcing rule opens up opportunities for multinationals selling U.S.-manufactured goods abroad to increase foreign-source income without changing legal structures or supply chain mechanics.

Section 163(j) Revisions

The Act delivers a win for capital-intensive businesses by restoring the EBITDA-based limitation on interest expense deductions under Section 163(j), while introducing new exclusions for certain international income items which may reduce the interest deduction ceiling.

Key Changes

• Effective for tax years beginning after December 31, 2024, the definition of Adjusted Taxable Income (ATI) reverts to a more favorable EBITDA model, reinstating the exclusion of depreciation, amortization, and depletion. This reverses the more restrictive EBIT-based cap that took effect in 2022 and restores a broader foundation for calculating the 30% interest limitation.
• Effective for tax years beginning after December 31, 2025, Subpart F inclusions, NCTI, Section 78 gross-up amounts, and Section 956 income, are excluded from ATI.
• The limitation is now determined before applying any interest capitalization rules. Once the limitation is applied, any deductible interest is first allocated to amounts subject to capitalization, with any excess allocated to deductible expenses.

Interpretation

The shift to EBITDA-based ATI is a win for domestic capital-intensive sectors, allowing larger interest deductions. Yet for multinationals, the story is more nuanced. By excluding Subpart F inclusions, NCTI, Section 78 gross-up amounts, and Section 956 income from ATI, the Act removes a common source of ATI expansion, reducing the capacity for interest deductions based on foreign earnings. This bifurcation reflects a policy tilt toward domestic investment, while discouraging the over-leveraging of foreign income streams.

Strategic Impacts

1. Domestic Capital Investment Gets a Boost: Capital-intensive sectors benefit from higher ATI - unlocking more deductible interest.
2. Multinationals Should Reevaluate Financing Strategies: With foreign income inclusions no longer contributing to ATI, multinationals may need to restructure financing between domestic and foreign entities and reforecast ATI under the revised rules to mitigate unexpected interest deduction limitations.

CFC & Subpart F Updates

Targeted reforms to the CFC and Subpart F regimes aim to reduce unintended inclusions and align cross-border ownership structures with economic substance.

Key Changes

• The downward attribution rule that deemed U.S. subsidiaries of foreign parents as owning foreign corporations they did not control is eliminated through reinstatement of Section 958(b)(4).
• New Section 951B establishes a special “Foreign-Controlled U.S. Shareholder” category for U.S. entities under foreign ownership, enhancing oversight of foreign-influenced CFC chains.
• The Section 954(c)(6) look-through rule that allows certain dividend, interest, rent, and royalty payments between related CFCs to be excluded from Subpart F income is made permanent.
• A U.S. shareholder is required to include its pro rata share of Subpart F income if it owns stock in a foreign corporation on any day the corporation is a CFC, eliminating the "last day" rule of Section 951(a)(1).

Interpretation

Eliminating downward attribution removes unexpected CFC classifications that previously burdened U.S. subsidiaries of foreign-owned groups. Making the look-through rule permanent provides long-term certainty for intercompany dividend planning. At the same time, the revised pro rata inclusion rules tighten timing mismatches, closing loopholes that allowed strategic deferral of Subpart F income.

Section 899: The Retaliatory Tax That Didn't Survive

Sometimes, what is omitted from legislation reveals more than what is included. One of the most conspicuous absences from the final version of the Act was the proposed Section 899, dubbed the “revenge tax,” which aimed to retaliate against foreign governments imposing digital services taxes (DSTs) or implementing Pillar Two minimum tax rules like the Undertaxed Profits Rule (UTPR).

Originally designed to impose higher U.S. tax rates on entities from jurisdictions adopting DSTs or targeting U.S. multinationals under Pillar Two, Section 899 was a bold assertion of tax sovereignty. However, it was removed from the Senate bill after the U.S. Treasury reached an agreement with the other G7 countries to exclude U.S. companies from Pillar Two Income Inclusion Rule (IIR) and UTPR taxes, in exchange for dropping the proposed Section 899.

Interpretation

The removal of Section 899 signals a strategic pivot toward multilateral cooperation, at least for now. With DSTs continuing to proliferate and Pillar Two gaining traction globally, Section 899 remains a dormant policy lever - one that could reemerge in future negotiations or enforcement efforts if diplomatic consensus falters.

Orbitax International Tax Calculator Readiness

Whether you are modeling the shift back to EBITDA-based ATI for 2025 or analyzing the impact of the repeal of NDTIR taking effect in 2026, Orbitax International Tax Calculator has you covered:

• NDTIR can be disabled in NCTI calculations
• The new NCTI Deduction (40%) and Tax Rate (12.6%) can be configured
• The new FDDEI Deduction (33.34%) and Tax Rate (13.9986%) can be configured
• The new BEAT Tax Rate (10.5%) can be configured
• The new NCTI Credit Haircut rate (10%) can be configured
• Depreciation, amortization, and depletion can be added back to ATI
• Subpart F, NCTI, Section 78 gross-ups, and Section 956 inclusions can be excluded from ATI

For more information on Orbitax International Tax Calculator or to see a demo - visit the Orbitax International Tax Calculator webpage.