USA Trends and Developments Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
Base Erosion Anti-Abuse Tax is increased to 10.5% The Base Erosion Anti-Abuse Tax (BEAT) is a provision from the TCJA that imposes an additional tax to the extent that an applicable taxpayer’s modified taxable income (MTI) exceeds 10% of its regular tax liability (reduced by certain tax credits). The 10% threshold by which a taxpayer’s MTI is measured was set to increase to 12.5% beginning in 2026. The OBBBA has now set the BEAT rate permanently to 10.5% — a net positive for BEAT payers, who avoid the 12.5% scheduled increase.
• applies to tax years beginning in 2026. FDII changed to FDDEI
The foreign-derived intangible income (FDII) deduc - tion was a TCJA tax incentive designed to encourage US multinationals to produce foreign income from the sale of goods or services tied to US intangibles. The OBBBA: • renamed this deduction foreign-derived deduction- eligible income (FDDEI) and reduced the deduction from 37.5% to 33.34% (although the deduction was set to be reduced further under the TCJA for tax years beginning after 31 December 2025); • eliminates a reduction of the deduction eligible income for a deemed return on tangible assets – resulting in an increase in the income eligible to be reduced by the deduction; and • limits the expenses allocable to the FDDEI calcula - tion (eg, no longer apportioning interest expense and certain research and experimental costs) – resulting in an increase in the amount of income eligible for reduction by the deduction.
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