The “One Big Beautiful Bill” (OBBBA) became law on July 4, marking the most significant overhaul to US tax law since the Tax Cuts and Jobs Act of 2017. For businesses with international operations and high-net-worth individuals, these 2026 tax law changes will reshape tax planning strategies and compliance requirements starting in 2026.
The new law introduces modifications to existing international tax regimes, including changes to the Global Intangible Low-Taxed Income (GILTI) rules, Foreign-Derived Intangible Income (FDII) deductions, and the Base Erosion and Anti-Abuse Tax (BEAT). Understanding these changes is essential for making informed decisions about your tax strategy.
This analysis examines the most impactful modifications and their implications for your business operations and tax obligations.
GILTI Regime Changes
The modifications to the GILTI regime will impact how multinational corporations calculate and report their international income.
Simplified Calculation Process
The legislation eliminates the qualified business asset investment (QBAI) reduction benefits that currently allow taxpayers to reduce their GILTI exposure. This removes a key mechanism for reducing international tax liability but also simplifies the calculation process.
The law introduces a fundamental change in terminology and calculation. Instead of including GILTI, taxpayers will include their net CFC tested income (NCTI). Beginning after December 31, 2025, the percentage deductions related to NCTI inclusion will be reduced to 40%. This translates to an effective tax rate on NCTI of between 12.6% and 14%.
Foreign Tax Credit Adjustments
The new law reduces the current 20% haircut for foreign income taxes deemed paid with respect to NCTI inclusion to 10%. This provides some relief by allowing taxpayers to claim a greater portion of their foreign tax credits.
However, the legislation introduces a new 10% disallowance for taxes paid on distributions of NCTI previously taxed earnings and profits. This creates a balancing effect that requires careful consideration in tax planning.
FDII Deduction Updates
The Foreign-Derived Intangible Income (FDII) deduction includes modifications that affect how domestic corporations benefit from their international activities.
Enhanced Benefits
The new law allows a deduction of 33.34% of the corporation’s entire foreign-derived deduction eligible income (FDDEI). This results in an effective tax rate of 14% on FDDEI, providing a competitive advantage for domestic production and international sales and services.
Similar to the GILTI changes, the FDII modifications eliminate the impact of a corporation’s QBAI, thereby reducing complexity in the current system.
Property Exclusions
The legislation excludes income or gain from the sale or disposition of intangible property or any other property subject to depreciation, amortization, or depletion. This exclusion focuses the FDII benefit on operational income rather than asset dispositions.
BEAT Rate Changes
The Base Erosion and Anti-Abuse Tax faces modifications that will impact large corporations with substantial related-party transactions.
Increased Tax Rates
The new law increases the BEAT rate to 10.5% for most taxpayers, with a higher rate of 11.5% for certain banks and securities dealers. This represents a substantial jump from current rates and could significantly impact companies subject to BEAT.
Credit Treatment Modifications
The legislation repeals the scheduled 2026 tax law changes in the treatment of certain tax credits, providing certainty for taxpayers who were planning around the previously scheduled modifications.
Additional International Provisions
The legislation includes several other international tax provisions that provide stability and clarity:
- Modifies source rules for manufactured inventory sales, allowing up to 50% of income from sales of inventory produced in the US and sold through a foreign office or fixed place of business to be treated as foreign-source income.
- Permanently extends the CFC look-through rule of section 954(c)(6), eliminating uncertainty surrounding this rule’s periodic renewals
- Reinstates Section 958(b)(4), which restricts the downward attribution of stock ownership from foreign persons to US persons
- Eliminates the option for specified foreign corporations to use a one-month deferral taxable year
Planning for Implementation
With the new law now finalized, businesses have time to prepare for the changes that will take effect in 2026. Consider conducting a comprehensive review of your international structure to identify potential impacts from these modifications.
This analysis should include modeling the effects on your effective tax rates, foreign tax credit utilization, and overall compliance requirements. The key areas to focus on include:
- Calculating the impact of revised GILTI/NCTI rules on your international subsidiaries
- Evaluating FDII benefits for your domestic operations with international sales
- Assessing BEAT exposure under the new higher rates
Take Action Now
The new international tax rules will fundamentally change how multinational businesses approach their tax strategy. Starting your analysis now, rather than waiting until the 2026 tax law changes, gives you the best opportunity to minimize disruption and maximize benefits from the new rules.
Working with experienced international tax professionals can help you navigate these complex changes and develop strategies that position your business for success under the new law. The comprehensive nature of these modifications requires careful planning and implementation to ensure compliance and optimize your tax position.
Consider scheduling a consultation to evaluate how these changes specifically impact your business structure and develop a tailored strategy for the new tax landscape.
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