International Year-End Tax Planning 2026

Most OBBBA international provisions apply to tax years beginning after December 31, 2025, so 2026 is the first year in which calendar-year groups compute net CFC tested income (NCTI), foreign-derived deduction eligible income (FDDEI) and the revised base erosion and anti-abuse tax (BEAT) under the new rules. This summary addresses the rules that govern 2026 and later years only.

Key International Changes for 2026 and Later

Select Provisions

CFC Look-Through Rule: §954(c)(6)

Dividends, interest, rents and royalties received or accrued by a CFC from a related CFC continue to be excluded from foreign personal holding company income to the extent attributable to the payor’s income that is neither Subpart F income nor effectively connected income. The rule is now permanent, so groups can rely on it for long-term intercompany financing and licensing structures without the annual extension risk of prior years.

Required Tax Year for Specified Foreign Corporations: §898

Specified foreign corporations (SFCs) must use the tax year of their majority U.S. shareholder; the election to use a year beginning one month earlier is repealed. For 2026, a calendar-year group’s CFCs report on a calendar year. Proposed regulations (REG-115145-25, published August 3, 2026) allocate foreign income taxes accrued in the transition between the first required year and the succeeding year. For most calendar-year groups, the transition occurs in 2026. Taxpayers may rely on the proposed rules if they apply them consistently and in their entirety. Confirm that 2026 foreign tax credit computations reflect the allocated taxes and that local-country fiscal years and U.S. reporting years are reconciled.

Pro Rata Share Rules: §951(a)(2) and §951A

A U.S. person who is a U.S. shareholder of a CFC on any day during the CFC’s tax year includes its pro rata share of Subpart F income and tested income or loss, determined by reference to the days it held the stock while the corporation was a CFC. Proposed regulations REG-115646-25, published August 26, 2026, would implement this through a daily proration approach and would eliminate the extraordinary reduction rules under §245A as no longer necessary.

Buyers and sellers of CFC stock should address partial-year Subpart F and NCTI exposure, information sharing, closing-of-the-year elections and related tax distributions or indemnities in purchase agreements.

Net CFC Tested Income (NCTI), Formerly GILTI

Foreign-Derived Deduction Eligible Income (FDDEI), Formerly FDII

Corporations planning dispositions of IP or depreciable property to foreign persons should not assume FDDEI treatment of the gain.

Expense Allocation for the NCTI Basket: §904(b)(5)

Solely for the foreign tax credit limitation, the §250 deduction for NCTI and deductions for state and local taxes on that income are allocated to the NCTI basket, while interest expense and R&E expenditures are not. Other deductions are allocated only if directly allocable. Proposed regulations REG-117273-25, published September 11, 2026, would reallocate deductions such as interest and stewardship expense to U.S.-source income, which generally increases the NCTI-basket limitation and the usable credit.

Foreign Sales of U.S.-Produced Inventory: §904(b)(6)

Solely for §904 limitation purposes, when a U.S. person sells inventory produced in the United States through a foreign office or fixed place of business for use outside the United States, up to 50% of the sales income may be treated as foreign source. Exporters with foreign branches and excess credits should model the effect on their general-basket limitation.

Restoration of §958(b)(4) and New §951B

Downward attribution of stock from a foreign person to a U.S. person is again prohibited in determining CFC status. New §951B applies downward attribution in a targeted way: a foreign-controlled U.S. shareholder, meaning a U.S. person who would own more than 50% by vote or value of a foreign corporation if downward attribution applied, of a foreign-controlled foreign corporation is treated as a U.S. shareholder of a CFC. Actual inclusions remain based on direct or indirect ownership under §958(a).

Where a foreign subsidiary was a CFC only because of downward attribution, the CFC-PFIC overlap rule of §1297(d) protected minority U.S. owners from PFIC status. Once the subsidiary is no longer a CFC, a U.S. owner of a passive foreign subsidiary may become a PFIC shareholder. Options include restructuring holdings through a U.S. partnership or acquiring additional stock or options to exceed 50%; option attribution may be disregarded under Treas. Reg. §1.954-1(f)(3) where options are used principally to create related-person status, and sham-transaction risk applies. Evaluate QEF and mark-to-market elections for the 2026 tax year.

Treasury has not yet issued the guidance authorized under §951B(d). Open questions include how previously taxed earnings and profits ordering, basket assignment and foreign tax credit rules apply to §951B inclusions, the reporting obligations of foreign-controlled U.S. shareholders and the treatment of foreign-controlled foreign corporations that are PFICs. Positions taken on 2026 returns should be documented pending that guidance.

Section 962 Election

Individual U.S. shareholders may elect to be taxed at corporate rates on Subpart F and NCTI inclusions, which allows the 21% rate, the 90% deemed-paid credit on NCTI and, under proposed regulations, the 40% §250 deduction, for a 12.6% pre-credit rate. Without the election, an individual pays up to 37% with no §250 deduction and no deemed-paid credit. The election is annual and applies to all of the taxpayer’s CFCs. Distributions in excess of the tax paid on the inclusion are taxed again, potentially as qualified dividends if the CFC is a qualified foreign corporation. Model the election before filing, considering the foreign effective rate, including whether the high-tax exclusion may be more efficient for rates above 18.9%, expected distributions and the CFC’s treaty status.

Base Erosion and Anti-Abuse Tax: §59A

The BEAT rate is 10.5% of modified taxable income and 11.5% for banks and registered securities dealers. R&D and other general business credits continue to offset BEAT liability. Both changes are permanent. Regulations reflecting these statutory modifications are on the 2026–2027 Priority Guidance Plan.

Dual Consolidated Losses — Disregarded Payment Losses: §1503(d)

Under the final dual consolidated loss regulations, the disregarded payment loss rules and the related anti-avoidance rule apply to tax years of disregarded payment entity owners beginning after December 31, 2025. A de minimis exception applies where the loss arises in an active trade or business and does not exceed the lesser of $3 million or 10% of the entity’s aggregate loss items for the foreign tax year, and royalties under license agreements executed before August 7, 2024, are excluded. U.S. groups with disregarded entities making deductible payments to related parties should identify 2026 exposure and income inclusion obligations.

Foreign Currency Gain or Loss of Qualified Business Units: §987

Treasury proposed regulations REG-103844-26, published August 14, 2026, that would let a CFC elect not to compute or recognize §987 foreign currency gain or loss on remittances from its qualified business units (QBUs), other than in certain inbound nonrecognition transactions; the economic currency gain or loss is instead reflected by U.S. shareholders under other Code provisions, such as on a taxable sale of CFC stock. For tax years ending on or before December 31, 2026, the election is made on a statement attached to the timely filed original return, including extensions. Separate proposed regulations would amortize pretransition §987 gain or loss ratably over 120 months rather than ten tax years, to prevent acceleration in short years such as those created by the §898 change. Notice 2026-17 also previews proposed rules permitting a method similar to the 1991 proposed regulations, narrower loss-suspension rules and an expanded definition of §987 hedging transactions. Groups with foreign branches or disregarded entities using a non-dollar functional currency should evaluate the CFC exemption election before filing 2026 returns.

Corporate Alternative Minimum Tax — CFC and Outbound Items: §56A

Notice 2026-7 previews further adjustments to adjusted financial statement income (AFSI) for corporations subject to the 15% corporate alternative minimum tax, including a rule under which a corporation that includes an amount under §367(d) on an outbound transfer of intangible property increases AFSI by that amount while the transferee foreign corporation reduces its adjusted net income by the deemed payment, and a rebuttable presumption rather than a per se rule for the anti-avoidance rule on foreign stock received in nonrecognition transactions. The AICPA has asked for durable relief from double counting of CFC income, which can enter AFSI once through the CFC adjustment under §56A(c)(3) and again when distributed. CAMT groups should model CFC adjustments and outbound IP transfers for 2026 and monitor the revised proposed regulations.

Interaction With Domestic OBBBA Provisions

Other Developments

Year-End Checklist

Sales of Goods or Services to non-U.S. Customers

CFC Ownership and Transactions

Cash Repatriation

Individuals With CFC Interests

Remote Work

Disclaimer: No action should be taken without advice from a member of Withum’s Tax Services Team because tax law changes frequently, which can have a significant impact on this guide and your specific planning possibilities.