How multinationals can stay ahead of OBBBA and Pillar 2

On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act (OBBBA), marking the most significant overhaul of its international tax rules since the 2017 Tax Cuts and Jobs Act. For U.S. headquartered multinational enterprises (MNEs), this legislation—combined with recent developments in global tax policy—ushers in a new era of complexity, compliance, and strategic recalibration.

In a recent Thomson Reuters webinar, experts from Orbitax unpacked the implications of the OBBBA and the G7’s political agreement on Pillar 2, offering insights into how MNEs can prepare for what’s next.

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A shifting global tax landscape

The G7’s June 2025 announcement signaled a major shift. U.S. parented groups may be excluded from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) under Pillar 2. In exchange, the U.S. removed Section 899, a retaliatory provision, from OBBBA.

While this agreement suggests a cooperative future, it’s important to note that more than 50 jurisdictions have already enacted Pillar 2 legislation, and the G7’s statement does not override existing laws.

As Jacob Fulton, Head of Quantitative Tax at Orbitax, explained, “The announcement was more political than legal. Compliance requirements haven’t changed yet. If an MNE had a filing obligation before June 26, it still exists now.”

OBBBA’s impact on the U.S. international tax rules

The OBBBA introduces sweeping changes to key international tax regimes:

1. GILTI → Net CFC Tested Income

Effective 2026, Global Intangible Low-Taxed Income (GILTI) is rebranded as Net CFC Tested Income.
The Section 250 deduction drops from 50% to 40%.
The net deemed tangible income return is repealed.
The effective U.S. tax rate increases to 12.6%.

Strategic impact: This may discourage foreign tangible investment and shift capital toward U.S.-based operations.

2. FDII → Foreign-Derived Deduction Eligible Income

Effective 2026, Foreign-Derived Intangible Income (FDII) is rebranded as Foreign-Derived Deduction Eligible Income.
The Section 250 deduction drops from 37.5% to 33.34%.
Gains from intellectual property (IP) dispositions are disallowed.
Interest, research and development (R&D) expenses are excluded from deductions.
The effective tax rate rises to 13.9986%.

Strategic impact: Encourages U.S.-based innovation and R&D while reducing incentives to monetize IP through sales.

3. BEAT adjustments

The base erosion and anti-abuse tax (BEAT) rate increases slightly to 10.5%.
Harsh 2026 provisions are repealed.
Credits like R&D and clean energy remain usable to offset BEAT liability.
Strategic impact: Provides planning stability for companies generating valuable credits.

Foreign Tax Credit (FTC) reforms

The OBBBA also introduces taxpayer-friendly changes to the FTC rules:

The deemed paid foreign tax limitation is reduced from 20% to 10%.
Certain deductions (e.g., interest, R&D) must now be allocated to U.S. source income, increasing usable credits.
Up to 50% of income from U.S.-produced inventory sold abroad may be treated as foreign source income.

Strategic impact: Improves credit recovery and reduces residual U.S. tax on foreign earnings.

Section 163(j) interest deduction changes

Effective for tax years beginning after December 31, 2024:

Returns to earnings before interest, taxes, depreciation, and amortization (EBITDA)-based adjusted taxable income (ATI).
Foreign income types (e.g., Net CFC tested income) are excluded from ATI.
The limitation is now determined before applying interest capitalization rules.

Strategic impact: Helps domestic capital-intensive businesses deduct more interest, but may prompt MNEs to restructure financing.

CFC and Subpart F reforms

The OBBBA reinstates Section 958(b)(4), removing downward attribution, and creates a new Section 951B for foreign-controlled U.S. shareholders. It also:

Makes the Subpart F look-through rule permanent.
Eliminates the “last day” rule, requiring inclusion of Subpart F income if a U.S. shareholder owns stock on any day the foreign corporation is a CFC.

Strategic impact: Reduces unintended inclusions and improves cross-border planning clarity.

Technology as a strategic enabler

With so many changes and uncertainties, Orbitax experts emphasized the importance of technology-driven scenario modeling and compliance automation.

Orbitax’s Global Minimum Tax (GMT) and International Tax Calculator (ITC) platforms offer:

Customizable calculations to model different legislative outcomes.
Automated updates via a robust country tracker.
Integrated compliance workflows from provision to filing.

Andrew Sommerville, Senior Manager at International Tax at Orbitax, noted, “Knowing what has changed is essential. But being able to test drive the impact ahead of 2026 is what will really help you stay ahead of the curve.”

What should MNEs do now?

Despite the G7’s political agreement, the compliance burden remains unchanged. Tax teams must:

Continue preparing for Pillar 2 obligations.
Monitor jurisdictional updates and legislative changes.
Leverage technology to automate data collection, research, and filing.

Without a robust solution, the volume and complexity of new obligations could be overwhelming.

Thomson Reuters + Orbitax: Future-ready compliance

Thomson Reuters and Orbitax are committed to helping global corporations navigate this complexity through connected, embedded, and intelligent compliance solutions. Whether you’re modeling the impact of OBBBA or preparing for Pillar 2, our partner ecosystem delivers unmatched expertise and automation.

Explore how Thomson Reuters and Orbitax can help your team stay ahead:

Watch our on-demand webinar, Navigate Evolving Pillar 2 Rules: The Orbitax Advantage for US Multinationals,  to learn how OBBBA and Pillar 2 are reshaping multinational tax strategy.