The 2025 International Tax Shake Up: What You Need to Know
Published on by Lauren Huster in International Business, Tax Services
Fireworks weren’t the only big news on July 4th this year. While most of us were enjoying cookouts and sparklers, Congress dropped the One Big Beautiful Bill Act (OBBBA). It is a sweeping overhaul of international tax rules that will touch just about every multinational business.
If you have operations overseas, sell to foreign markets, or even just own stock in a controlled foreign corporation (CFC), the rules of the game just changed. Here’s what’s new, why it matters, and what to do next.
Goodbye GILTI, hello NCTI
The Global Intangible Low-Taxed Income (GILTI) period has ended and been replaced with Net CFC Tested Income (NCTI), beginning in 2026. Under the new framework, the 10% “routine return” deduction for foreign tangible assets is eliminated, and income is subject to a permanent 12.6% rate. While higher than today’s rate, the predictability offers businesses more stability.
Taxpayers also gain more favorable access to foreign tax credits, with credit allowed for 90% of foreign taxes paid (up from 80%). The trade-off, however, is that interest expense and R&D deductions cannot be used to offset this income. Another key change is timing: if you own a CFC for even one day in the year, you must include your share of its income. Businesses should begin modeling their effective tax rate under the new rules, particularly those with subsidiaries in both high- and low-tax jurisdictions.
FDII gets a makeover (and a new name)
The Foreign-Derived Intangible Income (FDII) rules are also being reshaped and rebranded as Foreign-Derived Deduction Eligible Income (FDDEI). The revised rules streamline the calculation process by eliminating the complex asset-based formula. Taxpayers will face a permanent 14% rate, higher than today’s 13.1% but still below the scheduled 16.4%.
To benefit, companies will still need strong documentation to prove that their sales and services qualify as “foreign use.” This may involve customer attestations, export paperwork, or foreign revenue statements. Building documentation into your sales cycle ensures you’re prepared at filing and avoids last-minute challenges.
BEAT softens its bite
The Base Erosion and Anti-Abuse Tax (BEAT) was expected to become more demanding, but OBBBA takes a softer approach. Instead of increasing to 12.5%, the BEAT rate will remain at a permanent 10.5%, and existing credit rules will stay in place.
For businesses making significant payments to foreign affiliates, this adjustment offers some breathing room. Updating BEAT models will clarify how the new legislation may affect your tax posture.
Other big changes to flag
Congress also addressed several longstanding issues. The look-through rule is now permanent, preventing unexpected U.S. tax on payments such as dividends, interest, and royalties between CFCs. Downward attribution rules were corrected so U.S. taxpayers are no longer deemed to own stock in foreign affiliates solely because a foreign parent does.
The one-month deferral option for CFCs has been repealed, and inventory sourcing rules were adjusted so that up to 50% of certain foreign office sales may now be treated as foreign-source. Each provision could shift tax outcomes, so businesses should assess their position under the new legislation.
Section 987: currency gains and losses enter the spotlight
Final Section 987 regulations, effective in 2025, require companies with foreign branches using local currency to track and recognize gains or losses when funds are returned to the U.S. With volatile exchange rates, these rules can create significant swings in taxable income, making accurate systems and processes essential.
Don’t forget transfer pricing and CAMT
While OBBBA dominates attention, the IRS continues to prioritize transfer pricing and the Corporate Alternative Minimum Tax (CAMT). Strong intercompany documentation remains critical, and large groups should review their exposure to the 15% minimum tax on book income and incorporate these considerations into planning.
The bottom line
The 2025 reforms simplify some areas but introduce new challenges, pairing predictable rates with higher inclusions and stricter documentation requirements. Early planning is key. Companies should reassess global tax positions, strengthen documentation, and update compliance with BEAT, Section 987, and transfer pricing rules to remain prepared.
At Barnes Dennig, we help companies anticipate and adapt to changes like these. If you’d like to discuss how the new international tax legislation may affect your business, contact us today to schedule a free consultation with one of our international tax pros. You may also be interested in how the OBBBA affects individuals and businesses. You can find our entire coverage of the OBBBA here. As always, we’re here to help.
