How GILTI Changed After the One Big Beautiful Bill Act (OBBBA)
- Tradepass International Tax LLC
- Aug 5
- 3 min read
The Global Intangible Low-Taxed Income (GILTI) regime, introduced under the 2017 Tax Cuts and Jobs Act (TCJA), was significantly revised by the One Big Beautiful Bill Act (OBBBA)—a sweeping reform package passed in 2025 that reshaped international taxation for U.S. multinationals and investors. Below is a breakdown of the most important changes and their implications.
Background: What Was GILTI?
GILTI was designed to discourage U.S. corporations from shifting income to low-tax jurisdictions. It imposed a minimum tax on certain “excess returns” earned by Controlled Foreign Corporations (CFCs), calculated broadly as:
GILTI = CFC’s Net Tested Income – 10% of Qualified Business Asset Investment (QBAI)
U.S. corporate shareholders could claim a 50% deduction (Section 250) and a foreign tax credit (FTC) limited to 80% of foreign taxes paid, but individual shareholders of CFCs had no such relief unless they made a Section 962 election.
Key GILTI Changes Under the OBBBA
The OBBBA introduced five major changes to the GILTI regime:
1. Country-by-Country (CBC) GILTI Calculation
Under the TCJA, GILTI was calculated on an aggregate basis—meaning all CFC income and taxes were pooled. This allowed high-tax income to offset low-tax income.
The OBBBA eliminated this aggregation. Starting from tax years beginning after December 31, 2025, GILTI is now computed on a country-by-country basis. This aligns the U.S. with OECD Pillar Two principles, and prevents income from low-tax jurisdictions from being masked by foreign taxes paid elsewhere.
Implication: More U.S. shareholders will owe residual U.S. tax on low-taxed foreign income—even if their global effective foreign tax rate is above the GILTI threshold.
2. Reduced Section 250 Deduction
The Section 250 deduction for GILTI was previously 50% for corporations, effectively reducing the GILTI tax rate from 21% to 10.5%. The OBBBA reduced the deduction to 25%, increasing the effective GILTI rate to 15.75% (21% × 75%).
This brings the U.S. closer to the OECD’s 15% minimum tax under the global anti-base erosion (GloBE) rules.
Implication: U.S. corporations with foreign subsidiaries will pay more U.S. tax unless foreign taxes paid are sufficient to offset the increased U.S. burden.
3. Full Foreign Tax Credit (FTC) for GILTI
The OBBBA increased the allowable foreign tax credit on GILTI from 80% to 100%, although it retained the no carryforward/carryback rule and introduced separate FTC baskets by country.
This change partially offsets the impact of a higher GILTI rate and the shift to CBC methodology.
Implication: U.S. corporations can now use all foreign taxes paid on GILTI income, but must do so on a country-specific basis.
4. Expanded Application of Section 962 Election
The OBBBA made permanent improvements to the Section 962 election, which allows individuals to be taxed on GILTI as if they were corporations. Previously, individuals electing 962 could claim the 50% deduction but were often denied FTCs by the IRS (leading to litigation).
Under the OBBBA:
Individuals electing 962 can now claim FTCs on GILTI income, subject to CBC limitations.
The 962 election now also applies to domestic pass-through entities owning CFCs.
Implication: Individual U.S. shareholders of CFCs (especially in closely held structures) are now better positioned to mitigate GILTI liability.
5. End of the QBAI Exemption
The 10% return on QBAI—essentially a carveout for tangible asset returns—was repealed. GILTI now applies to all net tested income, regardless of physical investment in foreign jurisdictions.
This aligns GILTI more closely with OECD global minimum tax rules, which do not include a tangible asset exemption.
Implication: U.S. taxpayers with significant manufacturing or tangible foreign assets will see higher GILTI inclusions than under the old regime.
Final Thoughts
The OBBBA brought GILTI into alignment with evolving global norms—but at the cost of complexity and a higher tax burden for many U.S. taxpayers with foreign operations. The shift to country-by-country calculations, repeal of QBAI, and reduced Section 250 deduction all serve to increase the U.S. tax exposure of multinationals, even as the FTC rules offer some relief.
For U.S. taxpayers with international operations—whether large public multinationals or individual shareholders of foreign businesses—proactive planning is essential. Choosing the right entity structure, modeling foreign effective tax rates, and using tools like the Section 962 election are now critical in minimizing GILTI exposure under the post-OBBBA regime.
