U.S. International Tax Under the Second Trump Administration

The U.S. international tax landscape is in a state of flux. With key provisions from the Tax Cuts and Jobs Act (TCJA) scheduled to sunset at the end of 2025, U.S. multinationals and foreign companies doing business in the U.S. are paying close attention to potential legislation.  Add in the flurry of activity coming from the new Trump administration, and multinational taxpayers have several issues to keep an eye on. 

Effective Dates and Impact of TCJA Changes 

The IRC Sec. 250 deduction for foreign-derived intangible income (FDII) will decrease from 37.5% to 21.875%, effective for taxable years beginning after December 31, 2025. This change was part of legislative adjustments to the TCJA provisions and was designed to modify the tax incentives for U.S. corporations engaging in foreign and domestic business activities. 

Additionally, the IRC Sec. Sec. 250 deduction for global intangible low-taxed income (GILTI) will decrease from 50% to 37.5%, effective for taxable years beginning after December 31, 2025. As a result, the GILTI effective tax rate for U.S. corporations will increase.  

The IRC Sec. 59A Base Erosion and Anti-Abuse Tax (BEAT) rate will increase to 15%, effective for taxable years beginning after December 31, 2025. BEAT applies to large corporate taxpayers (other than S corporations, REITs, RICs) that have average annual gross receipts of $500 million or more over the three preceding tax years and base erosion percentage of 3% or higher (2% or higher for banks and registered securities dealers). The base erosion percentage is the total “base erosion payments” (deductible payments made to foreign related parties) divided by total allowable deductions of the taxpayer for the taxable year.  

OECD Global Minium Tax Deal 

Companies are also looking for clues on changes in global tax and trade policy to provide some guidance in an otherwise uncertain tax environment. One key development is the January 20, 2025, Executive Order, “The Organization for Economic Co-operation and Development (OECD) Global Tax Deal.”  The “Global Minimum Tax Deal” is more often referred to as “Pillar Two” of an OECD taxation plan, which would implement a minimum global income tax of 15% on corporations. The order directs the pertinent U.S. representatives to the OECD to notify the OECD that any commitments made by the Biden administration relating to the “Global Tax Deal” are deemed null and void, absent an act by the U.S. Congress adopting such provisions.  

Potential Change to U.S. Corporate Income Tax Rate  

One of the proposals made by President Trump during his campaign was lowering the U.S. corporate tax rate to 15% from 21%. (Ironically, this would fall in line with the 15% Global Minimum Tax under OECD’s Pillar 2.) This change would have a significant impact on U.S. multinational corporations that earn GILTI from their foreign subsidiaries abroad (e.g., controlled foreign corporations or CFCs), as a decrease in the U.S. corporate tax rate would also reduce the tax exposure on GILTI on U.S. taxpayers’ corporate income tax returns.  

2025: The Year Ahead 

Congress is expected to rely on the reconciliation process to pass any significant tax legislation in 2025, much like in 2017 with the TCJA. However, the rate of progress this year remains to be seen as the Republicans’ slim majority in the House of Representatives will be a key factor to watch. If unanimous support among House Republicans isn’t found, a bipartisan agreement will need to be reached. In such case, an extension of TCJA provisions may look very different than what was promised on the campaign trail. Additionally, the TCJA provisions impacting GILTI, FDII, and BEAT have not been front-and-center in recent discussions, which may not bode well for any changes. If Congress needs to make corporate friendly changes to “juice” up the economic impacts for deficit purposes, however, these provisions may come back into focus. 

 
Tax law changes are coming, whether the TCJA is extended or allowed to expire. In times of uncertainty, taxpayers should engage a trusted tax advisor to stay up-to-date on any upcoming changes. Proper planning is essential to navigate the complexities of the changing tax landscape and its impact on U.S. international taxation. Contact our international tax team today to discuss how we can help you.