The latest tax reform package brings sweeping updates to how the U.S. taxes foreign income, shifting the language, rules, and incentives that govern global business activity. If your company operates internationally or has controlled foreign corporations (CFCs), these changes are worth a close look.
A New Name and Framework: Goodbye GILTI, Hello Net CFC Tested Income
One of the headline changes is mostly semantic—but symbolically important:
“Global Intangible Low-Taxed Income (GILTI)” has been rebranded as “Net CFC Tested Income.”
While the term “GILTI” is being retired, the core mechanics remain in place—with a key difference: the tax-free deemed return on certain foreign investments has been repealed.
In other words, businesses will no longer receive a built-in exclusion for a “normal” return on foreign assets, meaning more foreign profits may now be subject to U.S. tax.
FDII Is Now Foreign-Derived Deduction Eligible Income (Still a Mouthful)
Another terminology shift: Foreign-Derived Intangible Income (FDII) is now Foreign-Derived Deduction Eligible Income (FDDEI).
This change reflects a move away from targeting “intangible” income specifically. Instead, the deduction is now tied to export-related income more broadly—still an incentive for U.S.-based companies selling goods or services abroad, but with less emphasis on IP.
Base Erosion Minimum Tax (BEAT) Gets a Slight Bump
To discourage multinational corporations from shifting profits offshore through payments to related foreign entities, the BEAT rate has been increased from 10% to 10.5%.
While this is a relatively small rate increase, the modification signals an effort to maintain pressure on base erosion strategies. Key structural clarifications and corrections were also made to the BEAT rules.
Coordination Between Business Interest Deductions and Capitalization Rules
New rules clarify how interest deductions work when businesses are required to capitalize interest under other tax rules (like Section 263A for inventory or long-term production):
The Section 163(j) limitation now applies before determining whether interest should be deducted or capitalized.
If limited, deductible amounts are first applied to interest that would otherwise be capitalized, which may reduce basis in assets rather than creating an immediate tax deduction.
This change could impact how and when businesses get tax benefit from interest expense, especially in real estate, manufacturing, or infrastructure-heavy sectors.
Other International Updates You Should Know:
Look-through rule made permanent: Section 954(c)(6), which helps prevent foreign-to-foreign dividends from being taxed as Subpart F income, is now permanent (was previously extended annually).
One-month deferral repeal: The election allowing certain foreign subsidiaries to use a tax year that ends one month before the U.S. parent is being repealed. This aligns reporting periods and may impact consolidation and foreign tax credit timing.
While many of these changes may seem like technical adjustments, they represent a larger effort to tighten loopholes, simplify compliance, and reinforce U.S. tax on foreign earnings. For multinational businesses, especially those relying on foreign IP, low-tax jurisdictions, or intercompany payments, the cost of foreign profits just went up.