“The ‘Big Beautiful Bill’: Unpacking US Tax Policy Shifts and Their International Implications

The “Big Beautiful Bill”, officially known as HR One, passed the House on 22 May 2025, and is now under Senate consideration.

Particularly notable among its many provisions, is the Global Intangible Low-Taxed Income (GILTI) regime, which would become a permanent 49.2% deduction, resulting in an effective rate of 10.688%. This prevents the scheduled decrease to 37.5% after 31 December 2025, which would have led to a 13.125% rate, thus providing a significant benefit to US multinationals. Interestingly, the legislation does not extend the controlled foreign corporation look-through rule of 954(C)(6), allowing it to expire.

The foreign-derived intangible income (FDII) deduction would be set permanently at 36.5%, leading to a 13.335% rate, applicable when intellectual property is used in US manufacturing for export. The base erosion and anti-abuse tax (BEAT) rate would be 10.1%, notably excluding the research credit and a portion of Section 38 credits from reducing regular tax liability, which raises the threshold for BEAT applicability.

Several provisions from the Tax Cuts and Jobs Act (TCJA) of 2017 are reinstated for 2025–29, including deductibility of US research and development costs (or an elective 60-month capitalisation under Section 174) and a 100% additional first-year depreciation deduction under Section 168(K) for property acquired and placed in service within this period. The Section 163(J) limit on interest deductibility would revert to being based on EBITDA for tax years beginning after 31 December 2024, but before 1 January 2030, offering an additional benefit compared to the current EBIT-based limit. Section 199A, which allows certain individuals, trusts, and estates to deduct 20% of business income, would be made permanent and the deduction increased to 23%.

In terms of state and local taxes, the individual deduction cap would increase from USD10,000 to USD40,000. The bill would also eliminate the pass-through entity tax workaround, which allowed partnerships and S corporations to bypass the USD10,000 cap by having the entity pay the tax. Other notable changes include increasing the gift tax exemption from USD5 million to USD15 million, increasing the standard deduction through 2028, 100% bonus depreciation for new manufacturing facilities, and a new tip deduction for individuals. Material modifications, including early sunsets and phase-outs, are also made to the energy provisions from the Inflation Reduction Act.

Section 899, termed the “enforcement of remedies against unfair taxes”, is closely aligned with the “America First” policy. This Section applies to foreign governments, corporations and their affiliates (excluding controlled foreign corporations) that impose what is deemed to be an “unfair tax” on US persons or US-owned foreign entities. Unfair taxes are defined to include:

Exceptions to such supposed “unfair taxes” include basic corporate income tax, taxes on permanent establishments and withholding taxes.

The consequence of a country imposing an unfair tax is an annual increase of five percentage points in the US tax rate on relevant foreign taxpayers for a four-year period, resulting in a maximum increase of twenty percentage points. For instance, a 30% statutory withholding tax could rise to 50%. For countries with treaties, the baseline rate for the increase starts from the treaty rate. Section 892, which provides beneficial tax treatment to foreign governments and sovereign wealth funds, is effectively turned off under this rule, making it punitive even if they have treaty availability (eg, a 0% treaty rate could become 20%). An important exception is portfolio interest, which retains its 0% withholding rate regardless of Section 899. Furthermore, Section 899 expands the BEAT provisions, making it more likely to apply to foreign companies with US investments.