Megabill Provisions Raise Tax Exposure for Multinationals

The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, introduces broad changes to international tax rules. These adjustments will affect U.S. corporations with foreign subsidiaries, especially those that benefit from favorable tax treatment on foreign income. While some provisions align with expectations tied to the scheduled end of the Tax Cuts and Jobs Act, the final OBBBA language establishes a less advantageous framework for multinationals starting in 2025.

GILTI and FDII Deduction Changes May Increase U.S. Tax Liability

Two changes in particular are drawing attention. First, the act tightens the tax treatment of Global Intangible Low-Taxed Income (GILTI), now officially renamed Net CFC Tested Income (NCTI). The Section 250 deduction for NCTI has been reduced from 50 to 40 percent, which effectively increases the U.S. tax rate on foreign income. At the same time, the bill eliminates the deemed tangible income return (DTIR), which formerly allowed a carve-out for returns on certain foreign tangible assets. That carve-out had made it easier to shelter foreign earnings by investing in tangible assets abroad, such as machinery or facilities. Under the new framework, that option is gone.

Second, the Section 250 deduction for FDII—now called Foreign-Derived Deduction Eligible Income (FDDEI)—drops to 33.34 percent, increasing the effective tax rate on qualifying export income. FDII, originally introduced to encourage domestic retention of intellectual property, is now a narrower and less valuable benefit under the new rules.

Both provisions apply to U.S. corporations with controlled foreign subsidiaries or operations abroad. These updates do not apply to companies structured with a foreign parent and a U.S. subsidiary, something that is common in industries like life sciences.

That said, companies conducting R&D overseas should note that Section 174 capitalization rules still require amortization over 15 years for foreign-based research activities, a change that remains in effect and continues to affect cash flow and planning. This remains particularly relevant in sectors with global development pipelines, such as life sciences and technology.

Modeling Scenarios Now Can Prevent Surprises at Year-End

The tighter rules for NCTI and FDDEI will affect 2026 taxable income calculations and likely increase tax liability for U.S. multinationals. The changes to the rules will come into effect for taxable years beginning after December 31, 2025.

AAFCPAs advises that clients with international footprints begin modeling these changes as part of their year-end tax strategy. This includes running scenarios to assess the effect of country-by-country limitations, which restrict the ability to average high- and low-tax jurisdictions. In some cases, corporate structures that once made tax sense may now increase exposure.

Beyond rate increases, the megabill includes other provisions worth monitoring. These include a one percent excise tax on certain outbound remittance transfers and lower thresholds for certain reporting forms, such as 1099. While guidance from the IRS is still expected, these changes may trigger new filing and planning requirements for some companies. In particular, cash transfers to foreign noncorporate entities may come under closer scrutiny.

Proactive planning, particularly for businesses with international roadmaps, is key. Even if the effect on total tax liability is modest, the administrative and timing burdens of these new rules are not.

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AAFCPAs advises multinational businesses and individuals on the full spectrum of international tax planning and compliance. We assist U.S.-based companies entering foreign markets and international businesses establishing operations in the United States. Our approach integrates technical insight with practical planning to manage cross-border tax exposure, optimize structures, and ensure compliance with evolving global tax regulations.

Clients rely on us for support with inbound and outbound planning, due diligence in mergers and acquisitions, and coordinated personal tax strategies. Our team works closely with legal and wealth advisory professionals to align tax positions with broader business and financial goals.

These insights were contributed by Bella Amigud, CPA, MST, Tax Partner, Christian Petruzzelli, MSA, CPA, Tax Manager, and Anthony Dello Stritto, CPA, MST, Tax Director. Questions? Reach out to our authors directly or your AAFCPAs partner. AAFCPAs offers a wealth of resources on international tax. Subscribe to get alerts and insights in your inbox.