2025 U.S. International Tax Reform: What is changing?

1. Sec. 954– Permanent extension of look‑through rule for related CFCs

This provision permanently extends the tax look‑through rule under IRC § 954(c)(6)(C), ensuring that dividends, interest, etc. from certain related controlled foreign corporations (CFCs) are not treated as Subpart F income indefinitely. Previously set to expire January 1, 2026, this rule is now made permanent. 

2. Sec. 898– Repeal of election for 1‑month deferral of specified foreign corporations' taxable year

Removes the option under IRC § 898(c)(2) that allowed certain foreign corporations to delay recognition of their taxable year by one month.

• Effective: Applies to foreign corporations’ tax years beginning after November 30, 2025.

• Transition rule: For corporations existing on November 30, 2025, their first post-November year must align with the "required year" under § 898(c)(1), with Treasury guidance to allocate taxes across periods. 

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3. Sec. 958– Restoration of limitation on downward attribution of stock ownership in constructive ownership rules

Amends § 958(b) to disallow downward attribution of stock ownership from non‑U.S. persons—that is, prevents U.S. persons from being considered owners of shares held by non‑U.S. persons.

• Also adds a new § 951B, imposing U.S. tax on U.S. persons with “foreign-controlled” stockholdings in non-U.S. corporations, mirroring Subpart F/Global Intangible Low-Taxed Income (GILTI) rules for those foreign-controlled investors.

• Applies to foreign corporations’ tax years beginning after December 31, 2025. 

4. Sec. 951– Modifications to pro-rata share rules (Subpart F income)

Revises IRC § 951(a) Subpart F inclusion rules:

• Clarifies that if a foreign corporation is a CFC any time during its year, each U.S. shareholder who owns stock at any point must include their pro-rata share of Subpart F income.

• Ensures pro-rata shares are based on both ownership percentage and the period of ownership during the year, and defines the taxable inclusion year.

• Provides authority to Treasury to issue rules allowing taxpayers to align a CFC’s taxable year with U.S. shareholders’ year end upon transfers.

• Also aligns Subpart F and GILTI (§ 951A) timing and attribution rules in this regard.

• Amendments apply to applicable taxable years as specified by the bill. 

The House version of the One Big Beautiful Bill Act includes a notable repeal of the so-called "revenge tax"—a provision enacted in 2017 that allowed foreign tax credits for certain base erosion payments by U.S. multinationals, but which effectively penalized U.S. companies operating abroad through disallowance rules under § 909. Its repeal eliminates a complex and controversial element of U.S. outbound taxation, aiming to simplify the creditability of foreign taxes.

Additionally, the bill incorporates a critical exemption from the OECD Pillar Two regime for U.S. companies by deeming U.S. minimum taxes—such as the Global Intangible Low-Taxed Income (GILTI) and the Base Erosion and Anti-Abuse Tax (BEAT)—as qualifying under Pillar Two’s income inclusion rule. This would shield U.S. multinationals from top-up taxes imposed by foreign jurisdictions under the Global Anti-Base Erosion (GloBE) rules, affirming U.S. sovereignty over its corporate tax base and addressing concerns about double taxation.

Overall Impact of U.S. International Tax Reform

Collectively, the 2025 U.S. International Tax Reform tightens and solidifies U.S. international tax rules by:

• Making certain anti‑deferral provisions permanent,

• Limiting tax avoidance strategies through constructive ownership and deferral elections, and

• Enhancing clarity and enforcement around Subpart F income inclusion (pro‑rata), attribution rules, and taxable years alignment.