The H.R. 1, One Big Beautiful Bill Act (OBBBA), introduces significant changes to U.S. international tax law, with a focus on competitiveness, simplification and anti-abuse. Designed to bolster U.S. global competitiveness, reduce complexity and close loopholes, the OBBBA significantly rewrites rules governing foreign income, deductions and reporting obligations for U.S. taxpayers, especially for corporations and their advisors.

As a tax professional, it’s important to understand how these changes affect controlled foreign corporation (CFC) inclusions, foreign tax credit (FTC) calculations and Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting.

International changes under the OBBBA: what tax pros need to know

Rebranding and reforming GILTI and FDII

One of the most notable changes under the OBBBA is the rebranding of major international tax concepts:

• GILTI (global intangible low-taxed income) is now called” net CFC tested income” (NCTI).
• FDII (foreign-derived intangible income) is now known as “foreign-derived deduction eligible income” (FDDEI).

The underlying mechanics have also shifted:

• The 10% QBAI (qualified business asset investment) exclusion for tangible assets is repealed, streamlining but broadening the base of tested income.
• The §250 deduction is reduced:
  • From 50% to 40% for NCTI
  • From 37.5% to 33.34% for FDDEI

Interest and R&E expenses are no longer apportioned to FDDEI income unless they’re properly allocable, which could result in larger deductions for qualified income.

Pro tip: You can expect updates to Form 5471 Schedules I and I-1 to reflect this terminology shift and revised calculation method. Former GILTI schedules will now focus on NCTI, and there will be no QBAI exclusion to report.

Foreign tax credit (FTC) enhancements

The OBBBA aims to level the international playing field by increasing allowable FTCs:

• The deemed paid credit for CFC tested income rises from 80% to 90%.
• Interest and R&E deductions are excluded from the FTC limitation calculations for NCTI, helping companies recover more of the foreign taxes they pay.
• The look-through rule for related CFCs under §954(c)(6) is made permanent, offering long-term planning certainty.

Tip: These changes will enhance the FTC value on Form 5471, Schedules E and P, particularly where previously taxed earnings and profits (PTEP) are involved.

CFC attribution and Subpart F inclusion overhaul

The rules for identifying and reporting ownership in CFCs are updated, reducing inadvertent inclusions and aligning inclusion periods:

• Downward stock attribution from foreign persons to U.S. persons is once again restricted, limiting unexpected CFC classifications.
• New concepts of foreign-controlled U.S. shareholders and foreign-controlled foreign corporations are introduced. These provisions extend inclusion rules to certain U.S. taxpayers controlled by foreign persons, even if the foreign corporation wouldn’t otherwise be a CFC.
• Prorate inclusion of Subpart F and NCTI now applies to any portion of the year in which stock is held, not just the last day of the tax year.

Tip: This change demands more precise ownership tracking for Form 5471. Tax pros should expect increased complexity when allocating Subpart F and CFC-tested income for partial-year holdings.

Other noteable international provisions

These notable international adjustments impact sourcing rules and can provide additional flexibility in cross-border sales and deductions:

• The BEAT (base erosion and anti-abuse tax) rate increased to 10.5% from 10%.
• Coordination rules for business interest expense limitation and interest capitalization are updated.
• A portion of income from U.S.-produced inventory sold abroad may now be treated as foreign sourced (up to 50%), if sold through a foreign branch.

Partnership and timing changes

• The election to defer the CFC’s taxable year by one month §898(c) is repealed.
• There is a continuing shift to an aggregate approach for partnerships in international contexts, aligning Subpart F and NCTI with partner-level inclusion.

Tip: Partnerships involved with CFCs must reassess how they allocate income to partners and ensure timely inclusion reporting across the board.

Form 5471: evolving responsibilities and reporting requirements

If you advise clients with international operations, Form 5471 continues to be the centerpiece of your compliance obligations. With the OBBBA changes:

• New terms such as “net CFC tested income” and “foreign-derived deduction eligible income” will appear throughout the form.
• Schedules I and I-1 will require updated calculations and reflect the repeal of QBAI.
• Additional information about ownership periods is required to support pro rata income inclusions.
• New FTC limitations and 90% deemed-paid rules must be clearly reflected in Schedules E and P.
• You may need to identify relationships with foreign-controlled U.S. shareholders or foreign-controlled foreign corporations, possibly requiring new checkboxes or explanations.

Form 5471 in action and how a tax professional might approach a 2026 filing under these new rules

U.S. Appletree Co. owns 100% of Foreign Pineapple Co., a CFC, for the full tax year.

Foreign Pineapple Co. earns:

• $1 million of net CFC tested income
• $100,000 of Subpart F income

Foreign Pineapple Co. pays $100,000 in foreign income taxes. Additionally, Foreign Pineapple has $2 million in tangible assets (no longer relevant for QBAI). Now, U.S. Appletree Co. is a calendar-year taxpayer, and the tax year is 2026.

NCTI inclusion: U.S. Appletree Co. will include the full $1 million in gross income. Under Subpart F income, U.S. Appletree Co. will also include $100,000 in gross income.

• Now under §250 deduction: 40% of NCTI will be $400,000 (0.40 x $1 million)
• Foreign tax credit: 90% of foreign taxes on NCTI will be $90,000 FTC (0.90 x $100,000)

Form 5471 reporting

• Schedule I-1: reports $1 million net CFC tested income (formerly GILTI)
• Schedule I: includes $100,000 Subpart F income
• Schedule E: $100,000 foreign taxes paid
• Schedule P: shows $90,000 FTC deemed paid
• Schedule G & O: confirm 100% ownership all year

Summary table of key OBBBA international changes affecting Form 5471

Area	Pre-OBBBA law	OBBBA change (2025+)	Form 5471 impact
GILTI	10% QBAI exclusion, 50% deduction	QBAI exclusion repealed, 40% deduction, renamed “net CFC tested income”	Report full tested income, new terminology
FDII	10% tangible asset exclusion, 37.5% deduction	Exclusion repealed, 33.34% deduction, renamed “foreign-derived deduction eligible income”	New calculation, new terminology
FTC on GILTI	80% deemed paid credit	90% deemed paid credit	Report higher credit, new limitation for PTEP
Expense Apportionment	Interest/R&E allocated to GILTI/FDII	Only directly allocable expenses allocated	Less complex reporting, affects FTC
Subpart F inclusion	Last day of CFC year	Pro rata for all periods of ownership	More detailed reporting of ownership periods
Downward attribution	Allowed	Limited (§958(b)(4) restored)	May affect CFC status, reporting
Look-through rule	Temporary	Permanent	Ongoing reporting for related CFCs

Planning for what’s next

While the One Big Beautiful Bill Act aims to simplify the international tax code, its immediate impact on reporting and compliance (especially for Form 5471 filers) is anything but simple. Tax professionals should plan for updates to IRS forms, client questionnaires and planning tools in the coming year.

Here are some ways to get ahead of the changes:

• Review client structures now for CFC status, especially where foreign-controlled U.S. shareholders are involved.
• Update tracking systems to monitor ownership periods more precisely.
• Recalculate FTC limitations under the new rules and explore how reduced expense apportionment could benefit your clients.
• Stay current on Form 5471 instructions, as the IRS is likely to release a revised version for the 2026 filing season.

NATP members can expect further resources and deep dives in our upcoming webinars, newsletter briefs and updated practice guides.