On July 4, 2025, Public Law 119-21 (P.L. 119-21), commonly known as the “One Big Beautiful Bill Act,” was signed into law, ushering in a new era of federal tax reform. While many provisions impact domestic operations, the international tax changes carry significant implications for multinational businesses. Notably, some provisions are retroactive, while others are prospective, affecting 2025 filings and planning decisions for 2026. The following points outline key international tax changes.
GILTI Becomes NCTI
P.L. 119-21 modifies the calculation of Global Intangible Low-Taxed Income (GILTI), replacing the Net Deemed Tangible Income Return (NDTIR) approach with a new framework called Net CFC Tested Income (NCTI). This change removes the impact of Qualified Business Asset Investment (QBAI) and alters how foreign earnings are taxed. Key elements include:
- Effective Tax Rate: Increased from 10.5% to 12.6%
- Foreign Tax Credit Allowance: Increased from 80% to 90%
- Section 904(b)(5): Eliminates allocation of R&E, interest and other non-directly allocable expenses against foreign source tested income
Overall, these changes are generally taxpayer-neutral-to-friendly. The NCTI regime and Section 904(b)(5) apply for tax years beginning after December 31, 2025.
FDII Becomes FDDEI
Similarly, the Foreign Derived Intangible Income (FDII) regime is replaced with Foreign Derived Deduction Eligible Income (FDDEI). The calculation no longer excludes deemed tangible returns, which can benefit taxpayers with high allocable expenses or significant QBAI. The effective tax rate rises due to a smaller deduction, but fewer expenses are allocable against eligible income. This regime also applies to tax years beginning after December 31, 2025.
Foreign Inventory Sales and Sourcing Changes
Changes to Section 863 and new Section 904(b)(6) modify foreign source rules for certain inventory sales. U.S. manufacturers selling inventory abroad through a fixed place of business — like a foreign branch or disregarded entity — may now treat a portion of income (up to 50%) as foreign source. This can significantly improve foreign tax credit utilization. Applicable for tax years beginning after December 31, 2025.
BEAT Updates
The Base Erosion and Anti-Abuse Tax (BEAT) rate has been adjusted from 10% to 10.5%, a smaller increase than previously scheduled for 2026. The threshold for applicability and the definition of base erosion payments remain broader under P.L. 119-21. Companies should model potential BEAT exposure while taking into consideration the broader changes within P.L. 119-21 that could affect adjusted taxable income. Applicable for tax years beginning after December 31, 2025.
Subpart F and Controlled Foreign Corporations (CFCs)
The law revises pro-rata share rules: any owner of a CFC during the year must include their allocation of subpart F income, not just those who are owners at year end. This change is generally taxpayer unfriendly and could increase compliance considerations for multinational businesses. Applicable for tax years beginning after December 31, 2025.
Strategic Considerations for Multinational Businesses
P.L. 119-21’s international provisions are interconnected, affecting cross-border planning in several ways:
- Review foreign structures to identify potential NCTI, BEAT and foreign tax credit implications
- Model the financial impact of changes in sourcing, creditability and intercompany allocations
- Update documentation, transfer pricing policies and compliance processes to reflect revised rules
- Consider “domestic” provisions like Section 174A R&E expensing and Section 163(j) interest limitations, as they may affect global tax profiles
A proactive, holistic approach is essential to understand the full impact of P.L. 119-21 on your global operations and compliance footprint.
Your Guide Forward
Cherry Bekaert’s International Tax team is committed to helping you navigate these changes with confidence. Whether addressing NCTI/FDDEI, foreign tax credits, BEAT or CFC rules, our team delivers tailored insights and practical solutions to help you anticipate challenges, seize opportunities and prepare your business for the evolving international tax landscape.
