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International Tax Reform Takes Shape: What the One Big Beautiful Bill Means for Multinationals

 

The One Big Beautiful Bill Act redefines the landscape of international taxation, prompting multinationals to reassess entity structures, optimize foreign tax credit strategies, and prepare for a new compliance era. With permanent rate changes and simplified deduction regimes, companies that act early will gain a strategic edge in managing global tax liabilities and regulatory risk. Dave Kim, Partner, Frazier & Deeter Advisory, LLC, and Leader of International Tax Practice, breaks down the implications in this video.

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In a landmark move, the U.S. Congress passed the One Big Beautiful Bill Act of 2025, ushering in a transformative set of updates to the nation’s international tax framework. These sweeping revisions recalibrate core elements of cross-border taxation, with most changes taking effect for tax years ending after December 31, 2025. 

For globally active companies, the message is clear: review your structures, rethink your strategies, and prepare for a new era of compliance and opportunity. Here’s what you need to know. 

The changes begin with Section 59A—the Base Erosion and Anti-Abuse Tax, known as BEAT—which now applies more rigorously. Non-financial entities will see their rate bump slightly to 10.5%, while financial institutions are subject to an even higher rate of 11%. Crucially, these rates are no longer temporary features of the code; they are here to stay. With permanent thresholds in place, companies can plan with greater certainty, though the imperative to manage intercompany payments and transfer pricing grows stronger than ever. 

Turning to exports, the Foreign Derived Deduction Eligible Income regime—recently rebranded from FDII to FDDEI—takes a modest hit. The available deduction drops from 37.5% to 33.34%, nudging the effective U.S. tax rate on eligible foreign income up to 14%. However, businesses may find comfort in the simplification of the FDDEI calculation. Prior exclusions based on asset investment and deemed returns (QBAI and NDTIR) are eliminated, reducing compliance complexity and making planning more straightforward. 

Global Intangible Low-Taxed Income, or GILTI, also undergoes a facelift. Now referred to as Net CFC Tested Income (NCTI), this regime sees its Section 250 deduction reduced from 50% to 40%, leading to a higher effective tax rate of 12.6%. Yet the news isn’t all bad—foreign tax credit limitations are softened, with only 10% of deemed paid taxes disallowed (down from 20%). That means more credit for taxes paid abroad, helping many companies cushion the blow of increased U.S. tax liability. It’s a recalibration that rewards meticulous tax pool management and smart repatriation strategies. 

Perhaps one of the most favorable updates comes under Section 904(b)(5). From now on, only directly allocable expenses will reduce foreign source income for FDDEI and NCTI purposes. Interest and R&D costs are no longer apportioned across foreign and domestic income. This shift may significantly expand the deductions and credits available to global businesses, turning what was once a mechanical burden into a potential boost for the bottom line. 

Ownership rules also see a dramatic shift. Under Sections 951(a) and 951A(e), the infamous “hot potato rule”—which once assigned Subpart F and GILTI income to shareholders holding CFC stock on the final day of the year—is officially retired. Income is now spread pro rata across all U.S. shareholders who owned stock at any point during the taxable year. It’s a major change that elevates the importance of tracking shareholder movements throughout the year, lest tax liabilities appear unexpectedly. 

Meanwhile, the intricate world of CFC attribution receives new attention. The reinstatement of exceptions under Section 958(b)(4) offers relief to many taxpayers, while new anti-abuse provisions in Section 951B clamp down on structures that attempt to sidestep reporting through foreign ownership. The message is clear: transparency and compliance are no longer optional. 

One piece of good news for holding companies comes via the permanent extension of the Subpart F look-through exception under Section 954(c)(6). Income paid from one CFC to another may now be excluded from Subpart F treatment—provided the source stems from an active business. This continuity helps preserve the tax efficiency of multinational entity layering, especially in jurisdictions where passive income streams are prevalent. 

And finally, a proposed storm cloud has vanished. The administration’s controversial “Revenge Tax” under Section 899, aimed at penalizing foreign investors from jurisdictions with “unfair” taxes, has been withdrawn. Diplomatic negotiations prevailed, with G7 countries affirming that measures under OECD’s Pillar 2 and digital service taxes will not apply to U.S. businesses. 

What’s Next?

With permanent rate changes, rule simplifications, and tightened ownership and attribution rules, the new law reshapes both risk and reward in global tax planning. Businesses would do well to assess their entity structures, refine foreign tax credit strategies, and forecast their compliance landscape before year-end 2025. 

The International Tax Services team remains committed to helping clients translate this complexity into clarity—and to uncover the strategic opportunities that come with a well-informed response. 

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About The Speakers:

Dave Kim, Tax Partner and Practice Leader, Frazier & Deeter Advisory, LLC

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