The recently signed One Big Beautiful Bill Act (OBBBA) modified the Global Intangible Low Tax Income (GILTI) to Net CFC Tested Income (NCTI).
GILTI, enacted in 2017 under the Tax Cuts and Jobs Act (TCJA) to impose a minimum tax on intangible income of Controlled Foreign Corporations (CFC), requires U.S. shareholders that own at least 10% of a CFC to include in their current income their share of the CFC’s income that exceeds a deemed return on its tangible assets. C Corporations are allowed a 50% deduction of their GILTI, reducing the effective U.S. tax rate of 10.5%. A foreign tax credit of 80% of foreign taxes paid or accrued on GILTI is allowed.
Changes Under The One Big Beautiful Bill Act
NCTI goes into effect after December 31, 2025, and includes the following changes:
- A 40% Section 250 deduction (reduced from 50%)
- Foreign tax credit disallowance to 10% (reduced from 20%)
- No allocation of interest and research and experimental deductions for NCTI purposes
- Eliminates the qualified business asset investment exclusion
Impact
The overall impact of the new OBBBA rules will subject more CFCs to NCTI provisions with more offshore income subject to U.S. taxation. There will be no additional U.S. taxation if the CFC is taxed at 14% locally.
Individuals are still not eligible for the IRC Section 250 deduction or foreign tax credit under the OBBBA rules but can do the following to benefit from these changes:
- Elect to be treated as a corporation for tax purposes via a 962 election.
- Consider a C-corporation holding company for the foreign entities to take advantage of the Sec 250 deduction.
Planning
Taxpayers should engage in the following planning opportunities:
- Review entity classification and jurisdiction structuring to ensure the optimal structure.
- Consider various elections to minimize current taxation.
- Perform repatriation planning to reduce overall effective tax rate of foreign subsidiary income.
- Review their transfer pricing to minimize their worldwide effective tax rate.
Contact your RKL advisor to discuss the new international tax provisions, schedule an impact analysis, and learn how these changes may affect you and your business.
