SEC. 70311. Modifications related to foreign tax credit limitation.
(a) Rules for allocation of certain deductions to foreign source net CFC tested income for purposes of foreign tax credit limitation.—Section 904(b) is amended by adding at the end the following new paragraph:
“(5) DEDUCTIONS TREATED AS ALLOCABLE TO FOREIGN SOURCE NET CFC TESTED INCOME.—Solely for purposes of the application of subsection (a) with respect to amounts described in subsection (d)(1)(A), the taxpayer’s taxable income from sources without the United States shall be determined by allocating and apportioning—
“(A) any deduction allowed under section 250(a)(1)(B) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(1)(B)) to such income,
“(B) no amount of interest expense or research and experimental expenditures to such income, and
“(C) any other deduction to such income only if such deduction is directly allocable to such income.
Any amount or deduction which would (but for subparagraphs (B) and (C)) have been allocated or apportioned to such income shall only be allocated or apportioned to income which is from sources within the United States.”.
(b) Other modifications.—
(1) Section 904(d)(2)(H)(i) is amended by striking “paragraph (1)(B)” and inserting “paragraph (1)(D)”.
(2) Section 904(d)(4)(C)(ii) is amended by striking “paragraph (1)(A)” and inserting “paragraph (1)(C)”.
(3) Section 951A(f)(1)(A) is amended by striking “904(h)(1)” and inserting “904(h)”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70312. Modifications to determination of deemed paid credit for taxes properly attributable to tested income.
(a) Increase in deemed paid credit.—
(1) IN GENERAL.—Section 960(d)(1) is amended by striking “80 percent” and inserting “90 percent”.
(2) GROSS UP FOR DEEMED PAID FOREIGN TAX CREDIT.—Section 78 is amended—
(A) by striking “subsections (a), (b), and (d)” and inserting “subsections (a) and (d)”, and
(B) by striking “80 percent” and inserting “90 percent”.
(b) Disallowance of foreign tax credit with respect to distributions of previously taxed net CFC tested income.—Section 960(d) is amended by adding at the end the following new paragraph:
“(4) DISALLOWANCE OF FOREIGN TAX CREDIT WITH RESPECT TO DISTRIBUTIONS OF PREVIOUSLY TAXED NET CFC TESTED INCOME.—No credit shall be allowed under section 901 for 10 percent of any foreign income taxes paid or accrued (or deemed paid under subsection (b)(1)) with respect to any amount excluded from gross income under section 959(a) by reason of an inclusion in gross income under section 951A(a).”.
(c) Effective dates.—
(1) IN GENERAL.—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2025.
(2) DISALLOWANCE.—The amendment made by subsection (b) shall apply to foreign income taxes paid or accrued (or deemed paid under section 960(b)(1) of the Internal Revenue Code of 1986) with respect to any amount excluded from gross income under section 959(a) of such Code by reason of an inclusion in gross income under section 951A(a) of such Code after June 28, 2025.
SEC. 70313. Sourcing certain income from the sale of inventory produced in the United States.
(a) In general.—Section 904(b), as amended by section 70311, is amended by adding at the end the following new paragraph:
“(6) SOURCE RULES FOR CERTAIN INVENTORY PRODUCED IN THE UNITED STATES AND SOLD THROUGH FOREIGN BRANCHES.—For purposes of this section, if a United States person maintains an office or other fixed place of business in a foreign country (determined under rules similar to the rules of section 864(c)(5)), the portion of income which—
“(A) is from the sale or exchange outside the United States of inventory property (within the meaning of section 865(i)(1))—
“(i) which is produced in the United States,
“(ii) which is for use outside the United States, and
“(iii) to which the third sentence of section 863(b) applies, and
“(B) is attributable (determined under rules similar to the rules of section 864(c)(5)) to such office or other fixed place of business,
shall be treated as from sources without the United States, except that the amount so treated shall not exceed 50 percent of the income from the sale or exchange of such inventory property.”.
(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.
PART II—Foreign-derived deduction eligible income and net CFC tested income
SEC. 70321. Modification of deduction for foreign-derived deduction eligible income and net CFC tested income.
(a) In general.—Section 250(a) is amended—
(1) by striking “37.5 percent” in paragraph (1)(A) and inserting “33.34 percent”,
(2) by striking “50 percent” in paragraph (1)(B) and inserting “40 percent”, and
(3) by striking paragraph (3).
(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70322. Determination of deduction eligible income.
(a) Sales or other dispositions of certain property.—
(1) IN GENERAL.—Section 250(b)(3)(A)(i) is amended—
(A) by striking “and” at the end of subclause (V),
(B) by striking “over” at the end of subclause (VI) and inserting “and”, and
(C) by adding at the end the following new subclause:
“(VII) except as otherwise provided by the Secretary, any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d)) of—
“(aa) intangible property (as defined in section 367(d)(4)), and
“(bb) any other property of a type that is subject to depreciation, amortization, or depletion by the seller, over”.
(2) CONFORMING AMENDMENT.—Section 250(b)(5)(E) is amended by inserting “(other than paragraph (3)(A)(i)(VII))” after “For purposes of this subsection”.
(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to sales or other dispositions (including pursuant to deemed sales or other deemed dispositions or a transaction subject to section 367(d) of the Internal Revenue Code of 1986) occurring after June 16, 2025.
(b) Expense apportionment limited to properly allocable expenses.—
(1) IN GENERAL.—Section 250(b)(3)(A)(ii) is amended to read as follows:
“(ii) expenses and deductions (including taxes), other than interest expense and research or experimental expenditures, properly allocable to such gross income.”.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 2025.
SEC. 70323. Rules related to deemed intangible income.
(a) Taxation of net CFC tested income.—
(1) IN GENERAL.—Section 951A(a) is amended by striking “global intangible low-taxed income” and inserting “net CFC tested income”.
(2) REPEAL OF TAX-FREE DEEMED RETURN ON FOREIGN INVESTMENTS.—Section 951A, as amended by the preceding provisions of this Act, is amended by striking subsections (b) and (d) and by redesignating subsections (c), (e), and (f) as subsections (b), (c), and (d), respectively.
(3) CONFORMING AMENDMENTS.—
(A) (i) Section 250 is amended by striking “global intangible low-taxed income” each place it appears in subsections (a)(1)(B)(i), (a)(2), and (b)(3)(A)(i)(II) and inserting “net CFC tested income”.
(ii) The heading for section 250 of such Code is amended by striking “Global Intangible Low-Taxed Income” and inserting “Net CFC Tested Income”.
(iii) The item relating to section 250 in the table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking “global intangible low-taxed income” and inserting “net CFC tested income”.
(B) Section 951A(c)(1), as redesignated by paragraph (2), is amended by striking “subsections (b), (c)(1)(A), and (c)(1)(B)” and inserting “subsections (b)(1)(A) and (b)(1)(B)”.
(C) Section 951A(d), as redesignated by paragraph (2), is amended—
(i) by striking “global intangible low-taxed income” each place it appears and inserting “net CFC tested income”, and
(ii) by striking “subsection (c)(1)(A)” in paragraph (2)(B)(ii) and inserting “subsection (b)(1)(A)”.
(D) Section 960(d)(2) is amended—
(i) by striking “global intangible low-taxed income” in subparagraph (A) and inserting “net CFC tested income”, and
(ii) by striking “section 951A(c)(1)(A)” in subparagraph (B) and inserting “section 951A(b)(1)(A)”.
(E) (i) The heading for section 951A is amended by striking “Global Intangible Low-Taxed Income” and inserting “Net CFC Tested Income”.
(ii) The item relating to section 951A in the table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking “Global intangible low-taxed income” and inserting “Net CFC tested income”.
(b) Deduction for foreign-derived deduction eligible income.—
(1) IN GENERAL.—Section 250(a)(1)(A) is amended by striking “foreign-derived intangible income” and inserting “foreign-derived deduction eligible income”.
(2) CONFORMING AMENDMENTS.—
(A) Section 250(a)(2) is amended by striking “foreign-derived intangible income” each place it appears and inserting “foreign-derived deduction eligible income”.
(B) Section 250(b), as amended by subsection (a), is amended—
(i) by striking paragraphs (1) and (2),
(ii) by redesignating paragraphs (4) and (5) as paragraphs (1) and (2), respectively, and by moving such paragraphs before paragraph (3),
(iii) in paragraph (2)(B)(ii), as so redesignated, by striking “paragraph (4)(B)” and inserting “paragraph (1)(B)”, and
(iv) by striking “intangible” in the heading thereof and inserting “deduction eligible”.
(C) (i) The heading for section 250 is amended by striking “intangible” in the heading thereof and inserting “deduction eligible”.
(ii) The heading for section 172(d)(9) is amended by striking “intangible” and inserting “deduction eligible”.
(iii) The item relating to section 250 in the table of sections for part VIII of subchapter B of chapter 1 is amended by striking “intangible” and inserting “deduction eligible”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
PART III—Base erosion minimum tax
SEC. 70331. Extension and modification of base erosion minimum tax amount.
(a) In general.—Section 59A(b) is amended—
(1) by striking “10 percent” in paragraph (1) and inserting “10.5 percent”, and
(2) by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
(b) Conforming amendments.—
(1) Section 59A(b)(1) is amended by striking “Except as provided in paragraphs (2) and (3)” and inserting “Except as provided in paragraph (2)”.
(2) Section 59A(b)(2), as redesignated by subsection (a)(2), is amended by striking “the percentage otherwise in effect under paragraphs (1)(A) and (2)(A) shall each be increased” and inserting “the percentages otherwise in effect under paragraph (1)(A) shall be increased”.
(3) Section 59A(e)(1)(C) is amended by striking “in the case of a taxpayer described in subsection (b)(3)(B)” and inserting “in the case of a taxpayer described in subsection (b)(2)(B)”.
(c) Other modifications.—
(1) Section 59A(b)(2)(B)(ii), as redesignated by subsection (a)(2), is amended by striking “registered securities dealer” and inserting “securities dealer registered”.
(2) Section 59A(h)(2)(B) is amended by striking “section 6038B(b)(2)” and inserting “section 6038A(b)(2)”.
(3) Section 59A(i)(2) is amended—
(A) by striking “subsection (g)” and inserting “subsection (h)”, and
(B) by striking “subsection (g)(3)” and inserting “subsection (h)(3)”.
(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
PART IV—Business interest limitation
SEC. 70341. Coordination of business interest limitation with interest capitalization provisions.
(a) In general.—Section 163(j) is amended by redesignating paragraphs (10) and (11) as paragraphs (11) and (12) and by inserting after paragraph (9) the following:
“(10) COORDINATION WITH INTEREST CAPITALIZATION PROVISIONS.—
“(A) IN GENERAL.—In applying this subsection—
“(i) the limitation under paragraph (1) shall apply to business interest without regard to whether the taxpayer would otherwise deduct such business interest or capitalize such business interest under an interest capitalization provision, and
“(ii) any reference in this subsection to a deduction for business interest shall be treated as including a reference to the capitalization of business interest.
“(B) AMOUNT ALLOWED APPLIED FIRST TO CAPITALIZED INTEREST.—The amount allowed after taking into account the limitation described in paragraph (1)—
“(i) shall be applied first to the aggregate amount of business interest which would otherwise be capitalized, and
“(ii) the remainder (if any) shall be applied to the aggregate amount of business interest which would be deducted.
“(C) TREATMENT OF DISALLOWED INTEREST CARRIED FORWARD.—No portion of any business interest carried forward under paragraph (2) from any taxable year to any succeeding taxable year shall, for purposes of this title (including any interest capitalization provision which previously applied to such portion) be treated as interest to which an interest capitalization provision applies.
“(D) INTEREST CAPITALIZATION PROVISION.—For purposes of this section, the term ‘interest capitalization provision’ means any provision of this subtitle under which interest—
“(i) is required to be charged to capital account, or
“(ii) may be deducted or charged to capital account.”.
(b) Certain capitalized interest not treated as business interest.—Section 163(j)(5) is amended by adding at the end the following new sentence: “Such term shall not include any interest which is capitalized under section 263(g) or 263A(f).”.
(c) Regulatory authority.—Section 163(j), as amended by subsection (a), is amended by redesignating paragraphs (11) and (12) as paragraphs (12) and (13) and by inserting after paragraph (10) the following:
“(11) REGULATORY AUTHORITY.—The Secretary shall issue such regulations or guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or guidance to determine which business interest is taken into account under this subsection and section 59A(c)(3).”.
(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70342. Definition of adjusted taxable income for business interest limitation.
(a) In general.—Subparagraph (A) of section 163(j)(8) is amended—
(1) by striking “and” at the end of clause (iv), and
(2) by adding at the end the following new clause:
“(vi) the amounts included in gross income under sections 951(a), 951A(a), and 78 (and the portion of the deductions allowed under sections 245A(a) (by reason of section 964(e)(4)) and 250(a)(1)(B) by reason of such inclusions), and”.
(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
PART V—Other international tax reforms
SEC. 70351. Permanent extension of look-thru rule for related controlled foreign corporations.
(a) In general.—Section 954(c)(6)(C) is amended by striking “and before January 1, 2026,”.
(b) Effective date.—The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2025.
SEC. 70352. Repeal of election for 1-month deferral in determination of taxable year of specified foreign corporations.
(a) In general.—Section 898(c) is amended by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).
(b) Effective date.—The amendments made by this section shall apply to taxable years of specified foreign corporations beginning after November 30, 2025.
(c) Transition rule.—
(1) IN GENERAL.—In the case of a corporation that is a specified foreign corporation as of November 30, 2025, such corporation’s first taxable year beginning after such date shall end at the same time as the first required year (within the meaning of section 898(c)(1) of the Internal Revenue Code of 1986) ending after such date. If any specified foreign corporation is required by the amendments made by this section to change its taxable year for its first taxable year beginning after November 30, 2025—
(A) such change shall be treated as initiated by such corporation,
(B) such change shall be treated as having been made with the consent of the Secretary, and
(C) the Secretary shall issue regulations or other guidance for allocating foreign taxes that are paid or accrued in such first taxable year and the succeeding taxable year among such taxable years in the manner the Secretary determines appropriate to carry out the purposes of this section.
(2) SECRETARY.—For purposes of this subsection, the term “Secretary” means the Secretary of the Treasury or the Secretary’s delegate.
SEC. 70353. Restoration of limitation on downward attribution of stock ownership in applying constructive ownership rules.
(a) In general.—Section 958(b) is amended—
(1) by inserting after paragraph (3) the following:
“(4) Subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.”, and
(2) by striking “Paragraph (1)” in the last sentence and inserting “Paragraphs (1) and (4)”.
(b) Foreign controlled United States shareholders.—Subpart F of part III of subchapter N of chapter 1 is amended by inserting after section 951A the following new section:
“SEC. 951B. Amounts included in gross income of foreign controlled United States shareholders.
“(a) In general.—In the case of any foreign controlled United States shareholder of a foreign controlled foreign corporation—
“(1) this subpart (other than sections 951A, 951(b), and 957) shall be applied with respect to such shareholder (separately from, and in addition to, the application of this subpart without regard to this section)—
“(A) by substituting ‘foreign controlled United States shareholder’ for ‘United States shareholder’ each place it appears therein, and
“(B) by substituting ‘foreign controlled foreign corporation’ for ‘controlled foreign corporation’ each place it appears therein, and
“(2) section 951A (and such other provisions of this subpart as provided by the Secretary) shall be applied with respect to such shareholder—
“(A) by treating each reference to ‘United States shareholder’ in such section as including a reference to such shareholder, and
“(B) by treating each reference to ‘controlled foreign corporation’ in such section as including a reference to such foreign controlled foreign corporation.
“(b) Foreign controlled United States shareholder.—For purposes of this section, the term ‘foreign controlled United States shareholder’ means, with respect to any foreign corporation, any United States person which would be a United States shareholder with respect to such foreign corporation if—
“(1) section 951(b) were applied by substituting ‘more than 50 percent’ for ‘10 percent or more’, and
“(2) section 958(b) were applied without regard to paragraph (4) thereof.
“(c) Foreign controlled foreign corporation.—For purposes of this section, the term ‘foreign controlled foreign corporation’ means a foreign corporation, other than a controlled foreign corporation, which would be a controlled foreign corporation if section 957(a) were applied—
“(1) by substituting ‘foreign controlled United States shareholders’ for ‘United States shareholders’, and
“(2) by substituting ‘section 958(b) (other than paragraph (4) thereof)’ for ‘section 958(b)’.
“(d) Regulations.—The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—
“(1) to treat a foreign controlled United States shareholder or a foreign controlled foreign corporation as a United States shareholder or as a controlled foreign corporation, respectively, for purposes of provisions of this title other than this subpart (including any reporting requirement), and
“(2) with respect to the treatment of foreign controlled foreign corporations that are passive foreign investment companies (as defined in section 1297).”.
(c) Clerical amendment.—The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by inserting after the item relating to section 951A the following new item:
“Sec. 951B. Amounts included in gross income of foreign controlled United States shareholders.”.
(d) Effective date.—The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2025.
(e) Special rule.—
(1) IN GENERAL.—Except to the extent provided by the Secretary of the Treasury (or the Secretary’s delegate), the effective date of any amendment to the Internal Revenue Code of 1986 shall be applied by treating references to United States shareholders as including references to foreign controlled United States shareholders, and by treating references to controlled foreign corporations as including references to foreign controlled foreign corporations.
(2) DEFINITIONS.—Any term used in paragraph (1) which is used in subpart F of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986 (as amended by this section) shall have the meaning given such term in such subpart.
(f) No inference.—The amendments made by this section shall not be construed to create any inference with respect to the proper application of any provision of the Internal Revenue Code of 1986 with respect to taxable years beginning before the taxable years to which such amendments apply.
SEC. 70354. Modifications to pro rata share rules.
(a) In general.—Subsection (a) of section 951 is amended to read as follows:
“(a) Amounts included.—
“(1) IN GENERAL.—If a foreign corporation is a controlled foreign corporation at any time during a taxable year of the foreign corporation (in this subsection referred to as the ‘CFC year’)—
“(A) each United States shareholder which owns (within the meaning of section 958(a)) stock in such corporation on any day during the CFC year shall include in gross income such shareholder’s pro rata share (determined under paragraph (2)) of the corporation’s subpart F income for the CFC year, and
“(B) each United States shareholder which owns (within the meaning of section 958(a)) stock in such corporation on the last day, in the CFC year, on which such corporation is a controlled foreign corporation shall include in gross income the amount determined under section 956 with respect to such shareholder for the CFC year (but only to the extent not excluded from gross income under section 959(a)(2)).
“(2) PRO RATA SHARE OF SUBPART F INCOME.—A United States shareholder’s pro rata share of a controlled foreign corporation’s subpart F income for a CFC year shall be the portion of such income which is attributable to—
“(A) the stock of such corporation owned (within the meaning of section 958(a)) by such shareholder, and
“(B) any period of the CFC year during which—
“(i) such shareholder owned (within the meaning of section 958(a)) such stock,
“(ii) such shareholder was a United States shareholder of such corporation, and
“(iii) such corporation was a controlled foreign corporation.
“(3) TAXABLE YEAR OF INCLUSION.—Any amount required to be included in gross income by a United States shareholder under paragraph (1) with respect to a CFC year shall be included in gross income for the shareholder’s taxable year which includes the last day on which the shareholder owns (within the meaning of section 958(a)) stock in the controlled foreign corporation during such CFC year.
“(4) REGULATORY AUTHORITY.—The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance allowing taxpayers to elect, or requiring taxpayers, to close the taxable year of a controlled foreign corporation upon a direct or indirect disposition of stock of such corporation.”.
(b) Coordination with section 951A.—
(1) TESTED INCOME.—Section 951A(b), as redesignated by section 70323(a)(2), is amended—
(A) in paragraph (1)(A), by striking “(determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder)”, and
(B) in paragraph (1)(B), by striking “(determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder)”.
(2) PRO RATA SHARE.—Section 951A(c), as redesignated by section 70323(a)(2), is amended—
(A) in paragraph (1), by striking “in which or with which the taxable year of the controlled foreign corporation ends” and inserting “determined under section 951(a)(3)”, and
(B) in paragraph (2), by striking “the last day in the taxable year of such foreign corporation on which such foreign corporation is a controlled foreign corporation” and inserting “any day in such taxable year”.
(c) Effective dates.—
(1) IN GENERAL.—The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2025.
(2) TRANSITION RULE FOR DIVIDENDS.—Except to the extent provided by the Secretary of the Treasury (or the Secretary’s delegate), a dividend paid (or deemed paid) by a controlled foreign corporation shall not be treated as a dividend for purposes of applying section 951(a)(2)(B) of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) if—
(A) such dividend—
(i) was paid (or deemed paid) on or before June 28, 2025, during the taxable year of such controlled foreign corporation which includes such date and the United States shareholder described in section 951(a)(1) of such Code (as so in effect) did not own (within the meaning of section 958(a) of such Code) the stock of such controlled foreign corporation during the portion of such taxable year on or before June 28, 2025, or
(ii) was paid (or deemed paid) after June 28, 2025, and before such controlled foreign corporation’s first taxable year beginning after December 31, 2025, and
(B) such dividend does not increase the taxable income of a United States person that is subject to Federal income tax for the taxable year (including by reason of a dividends received deduction, an exclusion from gross income, or an exclusion from subpart F income).