On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, bringing major revisions to international tax rules. Among the most consequential changes for multinational enterprises are the redefinitions of Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII). These provisions—now renamed Net Controlled Foreign Corporation Tested Income (NCTI) and Foreign-Derived Deduction Eligible Income (FDDEI)—signal a shift in how the U.S. tax code treats foreign earnings and intangible income.
OBBBA makes several important revisions to the existing GILTI regime. Most notably, it eliminates the GILTI inclusion reduction for the net deemed tangible income return (NDTIR), which previously provided a 10% return on qualified business asset investments. With the NDTIR removed, foreign corporations no longer receive this benefit for depreciable assets, and U.S. shareholders should be mindful of the potential for higher tax obligations beginning in 2026 when the OBBBA provisions take effect.
Navigating a Complicated Regime
The shift from GILTI to NCTI adds another layer of complexity to international tax compliance. Multinational businesses will need to evaluate how these revisions affect their tax obligations starting in 2026.
Because the law changes deductions, credits, and allocation methods, businesses may see their effective tax rates shift and reporting requirements expand. The impact will vary based on a company’s structure, operations, and the level of foreign taxes already paid.
Corporations are encouraged to work closely with tax professionals to assess the ramifications of these changes and prepare strategies for compliance and planning before the new rules take effect.
Summary of Key Changes
OBBBA reduces the section 250 deduction rates and makes them permanent. It sets the FDDEI deduction at 33.34%, leading to an effective tax rate of 14%. It also sets the NCTI deduction at 40%, resulting in an effective tax rate of 12.6% for tax years beginning after December 31, 2025.
In addition to rate changes, OBBBA permits U.S. corporate shareholders, as well as individual shareholders who elect treatment under section 962, to claim a deemed foreign tax credit with respect to NCTI. The allowable percentage of deemed-paid foreign taxes rises from 80% to 90% beginning in 2026. A 10% reduction applies to certain distributions of previously taxed earnings paid after June 28, 2025, and no carryforward or carryback is allowed.
The law also eliminates the deemed tangible income return (DTIR) and net deemed tangible income return (NDTIR), removing the prior mechanism that reduced income based on qualified business asset investments. At the same time, it introduces simplified expense allocation rules.
Starting in 2026, U.S. expenses such as domestic interest and research and development are assigned to U.S. income instead of NCTI. The OBBBA further excludes from deduction eligible income any gain from the sale or deemed disposition of depreciable or intangible property occurring after June 16, 2025.
Adjusted taxable income (ATI) reverts to an earnings before interest, taxes, depreciation, and amortization (EBITDA) standard for section 163(j) beginning after December 31, 2024. Section 163(j) limits the amount of business interest expense a taxpayer may deduct. Beginning after December 31, 2025, NCTI, subpart F income, and section 78 gross-up amounts are excluded from U.S. ATI calculations. Subpart F requires U.S. shareholders to include certain passive or easily movable income of controlled foreign corporations currently in taxable income, while section 78 gross-up reflects foreign taxes deemed paid when claiming a foreign tax credit.
Conclusion
Beginning in 2026, new rules under the OBBBA will reshape how multinational businesses are taxed on foreign earnings. The adjustments to deductions, credits, and allocation methods could have a direct impact on effective tax rates and global structures. Waiting until the rules take effect may leave companies unprepared.
Now is the time to model outcomes, review existing strategies, and take proactive steps to protect your company’s position. Contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com today to ensure you are ready for these sweeping international tax reforms. This article is only a general summary of the GILTI-to-NCTI changes—additional provisions in the OBBBA may also affect your business.
Author Coleman Clark is a Tax Senior specializing in strategies for high-net-worth individuals and driving business growth. He focuses on providing personalized solutions to help clients achieve their financial goals. He can be contacted at 610-687-1600 or cclark@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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