A number of changes enacted earlier this year as part of the One Big Beautiful Bill Act (OBBB) materially impact tax planning, compliance, and financial reporting for many U.S. multinational enterprises (MNEs). With several applicable for taxable years beginning after Dec. 31, 2025 – and some earlier – MNE taxpayers should take time now to review the most relevant international and domestic OBBB tax changes and their potential implications.

International tax provision changes 

• Net CFC Tested Income or 'NCTI' – formerly GILTI

• Section 250 deduction reduced from 50% to 40%, increasing the stated effective tax rate on active non-Subpart F income from 10.5% to 12.6%
  • While the legislative history provides a broad-based estimate of a 12.6% effective tax rate for NCTI, the effect on any specific taxpayer will likely differ at least somewhat from the stated rate. Therefore, affected taxpayers should do at least some high-level modeling to determine the impact of this change.
• Foreign tax credit or “FTC haircut” reduced from 20% to 10%
• Interest, R&E, and other indirect expenses no longer reduce NCTI FTC benefit
• Elimination of QBAI

• Foreign-Derived Deduction-Eligible Income or 'FDDEI' – formerly FDII

• Deduction rate reduced from 37.5% to 33.34%, resulting in a stated increased effective tax rate from 13.25% to 14%
  • As with GILTI, specific taxpayers’ effects are likely to differ from the stated rate.
• Excludes interest and R&D expenses from expense allocation
• Elimination of QBAI
• Excludes any income or gain from the sale or disposition subject to 367(d) of intangible property (as defined in section 367(d)(4)) or other property that is subject to depreciation, amortization, or depletion

• Other international updates

• Base erosion and anti-abuse tax (BEAT) rate increased from 10% to 10.5% for years beginning after Dec. 31, 2025
• Permanent extension of CFC look-through rules
• Elimination of the one-month deferral rule for CFC tax year
• Sourcing changes on U.S.-produced inventory sales through foreign branches
• NCTI and Subpart F income allocation changes upon CFC ownership changes
• Changes in the so-called “downward attribution” rules for foreign-controlled MNCs

Domestic changes

• Section 174 – R&D Expensing

• Domestic research costs return to being immediately deductible.
• Taxpayers may elect capitalization and amortization over 60 months.
• Alternatively, taxpayers have the option to accelerate unamortized balances from 2022, 2023, and 2024 in 2025 and possibly 2026.
• Foreign research costs remain subject to 15-year amortization.
• Read more in our overview of R&E under OBBB.

• Section 163(j) – Interest Limitation (effective for 2025 tax years, except for the exclusion of GILTI and Subpart F amounts in computing ATI, which is effective in 2026)

• Adjusted Taxable Income (ATI) calculation returns to tax basis EBITDA approach, permanently excluding depreciation and amortization from the limitation calculation.
• Increases allowable interest deductions for more highly leveraged businesses.
• New rule subjects capitalized interest to limitation; thus, reducing prior planning benefits.
• CFC Subpart F and GILTI income inclusions are now statutorily excluded from ATI. Previously, the IRS Regulations had adopted this position, even though the statute was silent on the issue. 

• Bonus Depreciation 

• 100% bonus depreciation returns for property acquired and placed in service after Jan. 19, 2025.
• Taxpayers must consider written binding contract rules and determination of when construction “begins.”
• Introduced a new category of property called qualified production property (QPP), which allows for 100% bonus depreciation on non-residential real property if certain criteria are met.
• Read more in our overview of fixed asset changes.

How do domestic R&D changes and FDDEI benefits interact?

Under prior law, R&D expenses were allocated to sales and royalty income categories, thereby also reducing FDDEI benefits.

OBBBA now excludes R&E expenses from FDDEI allocation, meaning R&D deductions will no longer erode the FDDEI benefit for tax years beginning after Dec. 31, 2025. However, the FDDEI benefit for taxpayers that elect to accelerate R&E deductions (and other deductions such as bonus depreciation) into 2025 may see their FDDEI benefit reduced. As such, other planning options may be more beneficial. 

The immediate expensing of domestic R&D and the reduced impact of Section 163(j) will lower overall taxable income. While this is generally favorable, if taxable income decreases too much, the FDDEI and NCTI deductions (which are limited by taxable income) could be constrained. 

Affected taxpayers will need to model to evaluate issues such as losing FDDEI and NCTI benefits vs. claiming enhanced deductions (i.e., full expensing vs. amortization). Reach out to your tax advisor for assistance.

Applicability dates

The OBBB rules for NCTI, FDDEI, and Foreign Tax Credit (FTC) are applicable for taxable years beginning after Dec. 31, 2025. 

The full expensing for domestic research and experimental expenditures (and other options) are reinstated for tax years beginning after Dec. 31, 2024.