This article was originally published for The Tax Adviser.
H.R. 1, P.L. 119-21, known as the One Big Beautiful Bill Act (OBBBA), introduced significant changes to the controlled foreign corporation (CFC) rules that impact U.S. taxpayers with foreign corporate interests. Two key amendments introduced under Sec. 70353 of the OBBBA are particularly noteworthy:
Reinstatement of Sec. 958(b)(4): This provision prevents “downward attribution” by blocking the application of Sec. 318(a)(3). As a result, a U.S. domestic subsidiary (Domestic Sub) will no longer be treated as owning stock in a foreign subsidiary (Foreign Sub) that is owned by a foreign parent, as illustrated in Figure Example 1 below.
Introduction of Sec. 951B: This new section defines “foreign controlled foreign corporations” (FCFC) and “foreign controlled United States shareholders” (FCUSS). In the scenario illustrated in Figure 2, Domestic Sub (an FCUSS) is now required to include in its income the earnings of Foreign Sub (an FCFC) under Subpart F or net CFC tested income (NCTI, formerly known as global intangible low-taxed income or GILTI).
BDO’s Shaiq Ibrahim and Grace Shen provide full details in this article for The Tax Adviser.