USA Trends and Developments Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
Weil, Gotshal & Manges LLP 2001 M Street, NW Suite 600 Washington, DC 20036 USA
Tel: +1 202 682 7060 Fax: +1 202 857 0940 Email: devon.bodoh@weil.com Web: www.weil.com
On 3 July 2025, the US Congress passed the One Big Beautiful Bill Act (OBBA) and President Trump signed the OBBA into law on 4 July 2025. The OBBA is sweeping tax and spending legislation that, from a tax perspective, extends a number of expiring provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and intro - duces or amends a number of individual tax provi - sions, international tax provisions, state and local tax deductions, and energy transition tax credits. These changes indicate that the tax structure in the USA is in flux and remains at the forefront of US political and economic consciousness. We highlight various key domestic and international tax changes below. US International Tax Provisions The US international tax provisions of the OBBA gen - erally include removing certain CFC-related deferral provisions, fixing an attribution rule from the TCJA, adjusting the calculation of certain anti-deferral and anti-abuse rules from the TCJA, and making perma - nent a CFC look-through rule. Modification of CFC pro rata share rules and removal of CFC one-month deferral election Prior law allowed US shareholders of 10% or more of the stock of a controlled foreign corporation (CFC) to defer income under the Subpart F regime (ie, the anti-deferral regime applicable to passive income and easily movable income of a CFC) by only requiring such shareholders to include Subpart F income if they held stock in a CFC on the last day of the CFC’s tax - able year. Thus, midyear ownership changes generally resulted in tax deferral to a selling US shareholder. The OBBA requires a US shareholder to pick up its pro rata
share of Subpart F income if it owned CFC stock on any day of the CFC’s tax year. Prior law included an election that allowed deferral by granting a CFC the right to elect a taxable year ending one month earlier than that of its majority US share - holders (ie, US shareholders who own 50% or more of a CFC by vote or value). This allowed, particularly in the context of the TCJA’s changes to the US approach to international tax, a significant potential deferral of tax on the income of such CFC. The OBBA removes this election. Downward attribution fix The TCJA repealed a rule (former Section 958 (b)(4) of the Internal Revenue Code) preventing downward attribution of stock owned by a foreign person to a US person. The TCJA removed this rule in an attempt to limit certain transactions meant to de-control CFCs (ie, which would remove their status as CFCs). This attempt to preclude de-controlling transactions had significant unintended consequences. For exam - ple, if a foreign parented group of corporations also included a subsidiary that was a US corporation, then the removal of this rule caused such US corporation’s brother/sister foreign corporations to be treated as CFCs. Such proliferation of CFC status causes unnec - essary taxation (and administrative costs and risk) for CFCs unrelated to such CFCs’ own US shareholders within a foreign parented group. The OBBA restores former Section 958 (b)(4) so for - eign groups now are less likely to have unintended US CFC status and Subpart F taxation.
601 CHAMBERS.COM
Powered by FlippingBook