We wanted to update you on the provisions of the new tax bill that was signed into law on July 4 (the One Big Beautiful Bill Act). We recommend reviewing your current tax strategy in light of these changes. We are available to discuss how these provisions may impact your personal or business tax situation, and help you plan accordingly. If you have any questions or concerns, please call our office at (508) 830-0007.
Foreign tax credit limitation: The Senate Finance Committee version of the bill would have limited the deductions of a U.S. shareholder allocable to income in the global intangible low-tax income (GILTI) category when determining its foreign tax credit limitation. It would also have modified the determination of deemed paid credit for taxes properly attributable to tested income and change the rules for sourcing certain income from the sale of inventory produced in the United States. The adopted bill revises that provision and treats those deductions as allocable to “net CFC tested income” (which is what the bill turns GILTI into – see below).
Deemed paid credit: The bill amends Sec. 960(d)(1) to increase the deemed paid credit for Subpart F inclusions from 80% to 90%.
GILTI and FDII: The bill decreases the Sec. 250 deduction percentage for tax years beginning after Dec. 31, 2025 to 33.34% for foreign-derived intangible income (FDII) and 40% for GILTI, resulting in an effective tax rate of 14% for both FDII and GILTI. The bill also proposes changing the definition of deduction-eligible income for purposes of determining FDII. The bill also eliminates the use of a corporation’s deemed tangible income return for determining FDII and the use of net deemed tangible income return in determining GILTI. These changes result in the elimination of the terms FDII and GILTI, which will be renamed “foreign-derived deduction eligible income” and “net CFC tested income,” respectively.
BEAT: The bill increases the base-erosion and anti-abuse tax (BEAT) rate from 10% to 10.5%.
Business interest limitation: The bill provides that the Sec. 163(j) business interest limitation will be calculated prior to the application of any interest capitalization provision.
Remedies against unfair foreign taxes: The provision of the Senate Finance Committee version of the bill that would have enacted a new Sec. 899 to impose increased rates of tax (up to 15%) on certain affected taxpayers connected to countries that are deemed to impose unfair foreign taxes was dropped from the final bill.