What Changed — and Why It Matters
The One Big Beautiful Bill Act (OBBBA) resolves two major tensions that had plagued US international tax policy since 2017. First, every TCJA provision affecting individuals and pass-through businesses was set to expire on December 31, 2025, creating enormous uncertainty. Second, US international tax rules — GILTI, FDII, and BEAT — were increasingly misaligned with the OECD's BEPS Pillar Two global minimum tax framework that over 50 countries had already implemented.
The OBBBA addresses both. It makes the TCJA permanent for individuals while modifying the international provisions to bring the US closer to (though not fully aligned with) global standards. For multinational enterprises with US parents, operations, or subsidiaries, understanding these changes is essential for 2026 tax planning.
GILTI → NCTI: Effective Rate Rises to 12.6%
The most significant international change is the modification of GILTI (Global Intangible Low-Taxed Income). Under pre-OBBBA law, US corporations deducted 50% of GILTI inclusion under Section 250, resulting in an effective tax rate of 10.5% (21% corporate rate × 50% inclusion). The OBBBA reduces the Section 250 deduction from 50% to 40%, raising the effective rate to 12.6% (21% × 60%).
The legislation also renames GILTI to Net CFC Tested Income (NCTI) — a technical rename that signals Congress's intent to reconceptualize the provision as a true minimum tax rather than an anti-abuse rule. However, the underlying mechanics (tested income, tested loss, qualified business asset investment carve-out) remain largely intact.
QBAI Carve-Out Changes
The Qualified Business Asset Investment (QBAI) carve-out — which excludes a deemed return on tangible assets from the GILTI/NCTI base — is retained but recalibrated. The deemed return rate remains at 10% of average adjusted basis of qualified tangible property. However, the definition of qualified tangible property is tightened to exclude certain leased assets, reducing the carve-out benefit for asset-light businesses that had structured lease arrangements to inflate QBAI.
NCTI Rate vs. Pillar Two Rate
The 12.6% NCTI rate is deliberately set below the 15% Pillar Two minimum. This gap — 2.4 percentage points — means that US-parented groups may still face UTPR top-up taxes in jurisdictions that have implemented Pillar Two, unless the US–Pillar Two safe harbour or bilateral treaty protections apply. The OECD's Side-by-Side Package (January 2026) addresses this tension; see the separate Pillar Two Side-by-Side Package guide.
| Provision | Pre-OBBBA Rate | OBBBA Rate | Change |
|---|---|---|---|
| GILTI / NCTI Effective Rate | 10.5% | 12.6% | +2.1 pp |
| Section 250 Deduction (NCTI) | 50% | 40% | −10 pp |
| FDII / FDDEI Effective Rate | 13.125% | 14% | +0.875 pp |
| Section 250 Deduction (FDDEI) | 37.5% | 33.34% | −4.16 pp |
| FTC Haircut on NCTI | 20% | 10% | −10 pp |
| BEAT Rate | 10% | 10.5% | +0.5 pp |
| Corporate Rate (21%) | 21% | 21% | No change |
FDII → FDDEI: Export Incentive Restructured
Foreign-Derived Intangible Income (FDII) — the preferential rate on export-related income from US-source intangibles — is retained but renamed Foreign-Derived Deduction Eligible Income (FDDEI). The rename reflects a refinement of eligible income categories rather than a fundamental restructuring.
Under pre-OBBBA law, the Section 250 deduction for FDII was 37.5%, yielding an effective rate of 13.125%. Under OBBBA, the deduction falls to 33.34%, raising the effective FDDEI rate to approximately 14%. This is closer to (but still below) the 15% Pillar Two floor, and also closer to the NCTI rate, narrowing the spread between the outbound and inbound incentives.
Foreign Tax Credit Haircut Cut to 10%
One of the most taxpayer-favorable changes in the OBBBA is the reduction of the foreign tax credit haircut on NCTI from 20% to 10%. Under TCJA, only 80% of foreign taxes attributable to GILTI income could be credited against US tax (the 20% haircut). The OBBBA reduces this to a 10% haircut, meaning 90% of creditable foreign taxes on NCTI now offset the US liability.
This change significantly reduces the double-tax burden for US multinationals with high-taxed foreign subsidiaries. For a company with a foreign subsidiary facing a 15% local tax, the NCTI inclusion was previously partly uncreditable; under the OBBBA, most of the foreign tax is now usable against the US NCTI liability. The practical effect is to narrow the gap between the NCTI effective tax rate and the blended foreign rate for groups with substantive foreign operations.
BEAT Rate Rises to 10.5%
The Base Erosion and Anti-Abuse Tax (BEAT) rate increases from 10% to 10.5% under the OBBBA. BEAT applies to large US corporations (gross receipts ≥ USD 500 million, three-year average) that make significant base-eroding payments (such as royalties, interest, and services fees) to foreign related parties. If base erosion exceeds a threshold percentage of deductions, the BEAT functions as a minimum tax on modified taxable income, with base-eroding payments added back.
The 0.5 percentage point increase is modest, but the OBBBA also expands the definition of base-eroding payments to include certain structured financial transactions that had previously been excluded. Companies relying on hybrid instrument structures to reduce the BEAT base should review their existing arrangements for 2026 exposure.
BEAT and Pillar Two Interaction
Because the BEAT is not a "qualified domestic minimum top-up tax" under OECD Pillar Two rules, it does not satisfy the QDMTT safe harbour. US entities subject to BEAT remain potentially exposed to UTPR top-up taxes in other jurisdictions, depending on the jurisdiction's own GloBE implementation. The OECD's Side-by-Side Package attempts to provide some relief here through a conditional coordination mechanism.
TCJA Provisions Made Permanent
The OBBBA resolves the "TCJA cliff" — the January 1, 2026 expiration of most individual and pass-through provisions — by making them permanent. This is the headline domestic tax change and affects the tax position of individuals, estates, and pass-through businesses, but also has implications for multinational owners and private equity structures.
- Individual income tax rates: The seven TCJA brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are made permanent (vs. reversion to pre-TCJA rates of up to 39.6%)
- Standard deduction: The roughly doubled standard deduction ($15,000 single / $30,000 married for 2026) is made permanent with inflation adjustment
- Section 199A pass-through deduction: The 20% deduction for qualified business income from partnerships, S-corps, and sole proprietorships is made permanent
- Child Tax Credit: The $2,000-per-child credit (partially refundable) is made permanent
- Estate and gift tax exemption: The doubled exemption (~$13.99 million per person for 2026) is made permanent, preventing the cliff back to ~$7 million
- AMT exemption: The higher AMT exemption thresholds are made permanent, removing millions of upper-middle-income taxpayers from AMT exposure
Section 899: Retaliatory Tax on DST Countries
A notable addition in the OBBBA is the new Section 899, which authorizes the Treasury to impose increased withholding taxes and other retaliatory measures on residents of countries that levy Digital Services Taxes (DSTs) or Undertaxed Profits Rules (UTPR) targeting US companies in a discriminatory manner. This provision is explicitly designed to pressure other countries to repeal DSTs and negotiate coordination arrangements.
The retaliatory framework allows Treasury to increase applicable withholding rates on payments to residents of "discriminatory" tax jurisdictions by up to 5 percentage points above treaty rates. Canada's decision to repeal its retroactive DST in June 2025 was partly driven by concerns about triggering Section 899 measures. The provision adds a new geopolitical dimension to cross-border tax planning for companies with significant operations in DST-implementing countries.
See the Digital Services Tax Landscape 2026 guide for the full picture of how DST developments interplay with Section 899.
Interaction with BEPS Pillar Two
The US has not adopted the OECD's GloBE Model Rules (BEPS Pillar Two) as part of the OBBBA. The US position remains that NCTI/BEAT constitute a comparable regime, but the OECD has not recognized these as a qualified domestic minimum top-up tax (QDMTT). This creates a coordination gap.
Concretely, a US-parented multinational group operating in an EU country that has implemented Pillar Two could face UTPR top-up taxes on any US-source income that falls below the 15% GloBE ETR. The OECD's January 2026 Side-by-Side Package attempts to address this through a US-specific safe harbour mechanism. Groups should monitor the status of this package in each jurisdiction where they operate.
Planning Implications for Multinationals
Review CFC Tax Positions Against New NCTI Rate
With NCTI now at 12.6%, US multinationals should re-model the tax cost of income earned through controlled foreign corporations. The narrowed FTC haircut (10% vs. 20%) partly offsets the rate increase for CFCs in jurisdictions with tax rates above ~7%. For CFCs in low-tax jurisdictions (below 7%), the NCTI tax cost increases materially. Review whether the QBAI carve-out adequately shelters manufacturing and capital-intensive CFC income.
FDDEI Structuring Opportunities
The 14% FDDEI rate remains one of the most competitive rates available for US corporations on export income. Companies with IP located in the US that generates foreign-source sales or licensing income should ensure they meet the FDDEI qualification tests — particularly the enhanced foreign-person documentation requirements under the OBBBA — to preserve the preferential rate.
Related-Party Payment Flows and BEAT
With BEAT rising to 10.5% and the expanded definition of base-eroding payments, review intercompany royalty, interest, and service fee structures. Companies that previously had BEAT exposure just below the threshold may now be in scope. Run updated BEAT modelling for 2026 with the expanded payment definitions.
Passthrough and Estate Planning (Permanent TCJA)
With TCJA individual provisions now permanent, the urgency around year-end estate planning and pass-through structure review diminishes. However, this is also the right moment to formalise existing structures rather than relying on temporary rules: ensure Section 199A qualified business income allocations, entity classification elections, and estate planning documents reflect the permanent regime.
Frequently Asked Questions
What is the difference between GILTI and NCTI?
NCTI (Net CFC Tested Income) is the OBBBA's renamed version of GILTI. The mechanics are similar: the US shareholder includes its pro-rata share of the net tested income of its controlled foreign corporations. The key difference is a lower Section 250 deduction (40% vs. 50%), producing a higher effective tax rate (12.6% vs. 10.5%), plus minor definitional changes to the QBAI carve-out.
Does the OBBBA satisfy the OECD Pillar Two QDMTT requirement?
No. As of May 2026, the OECD has not recognized NCTI/BEAT as a qualified domestic minimum top-up tax under the GloBE Model Rules. This means US-parented groups can still face UTPR top-up taxes in jurisdictions that have implemented Pillar Two. The OECD's Side-by-Side Package provides a conditional relief mechanism, but it is not universally adopted.
When do OBBBA international provisions take effect?
Most OBBBA international provisions (NCTI rate change, FDDEI deduction change, FTC haircut reduction, BEAT rate increase) apply to tax years beginning on or after January 1, 2026. For calendar year taxpayers, this means the 2026 return filed in 2027 is the first return fully subject to the new rules.
How does Section 899 affect treaty-rate withholding?
Section 899 empowers the Treasury to publish a list of "discriminatory" tax jurisdictions (those with DSTs or UTPR measures targeting US companies) and authorize increased US withholding on payments to residents of those countries above the otherwise applicable treaty rate. As of May 2026, Treasury has not published a formal list, but monitoring the Section 899 regulatory process is important for companies with operations in DST countries.
Does the OBBBA change the US corporate tax rate?
No. The 21% corporate income tax rate from TCJA is unchanged and has no sunset provision, so the OBBBA does not affect it. Some proposals in earlier drafts would have raised the corporate rate to fund revenue, but those provisions were removed before final passage.