Article

One Big Beautiful Bill Act: Key international tax provisions

Initial analysis of the House-approved bill

Jun 05, 2025 · Authored by Jessica Jeane, James C. Lawson, Benjamin M. Willis, Nikki Grams

Outlined below is an initial analysis and important takeaways of key international tax provisions within the House-approved bill.It’s important to note that this is not final legislation; all tax provisions are subject to change in the Senate. The upper chamber begins its consideration of the measure the week of June 2 and is expected to significantly modify the House-approved bill.

Permanently increase post-2025 GILTI deduction to 49.2% (from 37.5%)

The GILTI deduction is proposed to be increased to 49.2% on a permanent basis for taxable years beginning after Dec. 31, 2025, and would remove the currently enacted scheduled change that would permanently reduce the deduction to 37.5% for taxable years beginning after Dec. 31, 2025.

Consider: The GILTI effective tax rate would increase from 10.5% to 10.67% as a result, which is still more taxpayer favorable than the 13.125% effective tax rate that would result if the GILTI deduction percentage changes to 37.5% as scheduled.

Consider: The temporary reversion of the adjusted gross income (AGI) limitation to an earnings before interest, taxes, depreciation and amortization (EBITDA) basis with respect to section 163(j) [and, separately, a broader exemption for certain small businesses from application of section 163(j) as results from a proposed increase in the gross receipts test of section 448(c) from a $25 million to $80 million aggregate threshold available to certain manufacturers] could decrease overall GILTI tax liability due to increased interest deductibility at the controlled foreign corporate (CFC) level.

Consider: The requirement to capitalize and amortize foreign research expenditures over a 15-year period remains. Taxpayers should continue to evaluate contract research activities performed by CFCs to determine if expenditures are currently deductible or subject to capitalization at the CFC level for purposes of calculating GILTI.

Permanently increase post-2025 FDII deduction to 36.5% (from 21.875%)

The FDII deduction rate is proposed to be increased to 36.5% on a permanent basis for taxable years beginning after Dec. 31, 2025. This change removes the scheduled change that would permanently reduce the deduction to 21.875% for taxable years beginning after Dec. 31, 2025.

Consider: The effective tax rate on post-2025 qualifying export activities would decrease to 13.335% from the scheduled 16.406% effective tax rate.

Post-2025 BEAT rate decreased to 10.1% (from 12.5%)

The BEAT rate is proposed to decrease to 10.1% on a permanent basis from the scheduled 12.5% BEAT rate for taxable years beginning after Dec. 31, 2025. The bill also retains the current treatment of certain tax credits (e.g., R&D credits), whereby “regular tax liability” calculated for BEAT purposes would not be reduced by these credits as an otherwise scheduled change (with effect of increasing BEAT liability due) for taxable years beginning after Dec. 31, 2025. Taxpayers subject to section 899 are subject to special rules with respect to BEAT. See more on section 899 below.

Consider: The proposed extension of the current treatment of certain credits would be a needed win for in-scope taxpayers, particularly those with substantial R&D credits for which, absent this extension, could find themselves subject to increased BEAT liability.

Introduction of section 899

If enacted, section 899 would allow for the U.S. government to raise applicable statutory tax rates on foreign companies and tax resident individuals up to an additional 20% (assessed in 5% annual increments) in response to any discriminatory or extraterritorial tax (an unfair foreign tax) imposed by their governments. The rate increase may be applied to a reduced treaty rate as applicable, however, the 20% cap on additional rate increase is based upon the applicable statutory tax rate and not the reduced treaty rate (e.g., U.S. source fixed determinable annual periodic (FDAP) interest income subject to a 0% treaty rate might ultimately be subject to a maximum rate of 50% and not 20%).

The proposal instructs the Secretary to, among other things, publish guidance quarterly listing each discriminatory foreign country determined to have an unfair foreign tax and its applicable date for purposes of determining when the additional tax should first be assessed and the annual increment at which the tax is to be assessed (e.g., 5% for the initial year of assessment and an additional 5% for each additional year the imposition of the unfair foreign tax continues up to the 20% cap in total rate increase).

These rate increases would apply to U.S. withholding taxes imposed on U.S. source FDAP payments, imposition of branch profits tax, income tax assessed on effectively connected income and tax imposed on the gross investment income earned by private foundations. Special rules apply to Foreign Investment in Real Property Tax Act (FIRPTA) withholding imposed on nonresident aliens. Rate increases on affected income under this proposal are generally applicable to taxable years beginning after the later of:

• (i) 90 days after the date of enactment of the proposal,
• (ii) 180 days after the date of enactment of the unfair foreign tax that causes such country to be treated as a discriminatory foreign country, and
• (iii) the first date that the unfair foreign tax of such country begins to apply.

Consider: If enacted as proposed, and assuming an enactment date prior to a September 2025 close, the assessment of additional tax under this proposal is likely to commence with the 2026 taxable year for an affected calendar year taxpayer where 90 days after enactment the “later of” date for application considering an anticipated listing of unfair foreign taxes already “on the books” and actively being imposed. Hence, this leaves a relatively short runway before rate increases may go into effect during which foreign nonresident aliens and foreign corporations (and, separately, U.S. withholding agents obligated to apply withholding tax on U.S. source FDAP payments) need to evaluate the applicability of section 899 to their particular facts and circumstances from a tax compliance and planning perspective.

Consider: Nonresident aliens and foreign corporations tax residents in a foreign country that either unilaterally imposes a digital services tax (DST) or diverted profits tax, or, through application of an under taxed profits rule (UTPR) pursuant to the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two global minimum tax, might impose a top-up tax on a U.S. ultimate parent entity or constituent entities (foreign or domestic) of a U.S. MNE group are particularly vulnerable to the imposition of a rate increase and might present an area of particular focus.

• Foreign countries with DSTs currently in effect (or soon planned to be effective) include, but are not limited to: Canada, Denmark, France, India, Italy, Mexico, Poland, Portugal, Spain and the UK.
• Foreign countries with a diverted profits tax currently in effect include: Australia and the UK.
• Foreign countries with a UTPR currently in effect (or soon planned to be effective) include, but are not limited to: Australia, Canada, EU bloc nations, Japan, New Zealand, South Korea, the UK and Thailand.

Consider: If enacted, the discriminatory foreign countries (and their respective unfair foreign taxes) likely under consideration for inclusion in prospective guidance is a process subject to rapid change amidst ongoing trade negotiations with the current Administration whereby those foreign countries currently in the cross hairs of this retaliatory provision might naturally fall off the list (e.g., through timely repeal of the offending taxes) and others not yet identified ultimately added (e.g., through new instances of unilateral imposition of DSTs in response to increased U.S. tariffs).

Consider: It is expected that, if enacted, significantly more U.S. corporations will be subject to BEAT as a result of certain proposed modifications under section 899. Corporations, especially those with direct or indirect foreign shareholders tax resident in discriminatory foreign countries, will need to determine if they would be BEAT taxpayers through the application of section 899.

Baker Tilly’s national tax professionals are actively monitoring related One Big Beautiful Bill Act developments in Washington. If you have questions on how the provisions may impact your tax situation, please contact your Baker Tilly tax advisor.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.