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28 May 2025

US House approves tax reconciliation bill, with minor rate changes in international tax provisions

  • The House-approved budget reconciliation bill would make small changes to the GILTI, FDII, and BEAT rates but would not change other international tax proposals, including newly proposed IRC Section 899.
 

On May 22, 2025, the House approved the budget reconciliation bill (the House Bill), after incorporating a manager's amendment. Compared to the bill approved by the House Ways and Means Committee on May 13, 2025, the House Bill would slightly modify the rates for global-intangible-low-taxed-income (GILTI), foreign-derived-intangible-income (FDII), and the base-erosion-anti-abuse-tax (BEAT), but would not change the rest of the international tax proposals, including newly proposed IRC Section 899 (which is intended to target "unfair foreign taxes").1 The small adjustments to the international rates may be an attempt to smooth passage of the bill given the Senate's reconciliation process. The international provisions, however, may change, potentially significantly, as the House Bill advances to the Senate.

For detailed discussions on the House Ways and Means Committee's earlier approval of the budget reconciliation bill, please refer to Tax Alert 2025-1075, dated May 16, 2025.

GILTI/FDII deduction rates

For tax years beginning after December 31, 2025, the House Bill would permanently set the GILTI and FDII deduction rates at 49.2% (from 50%) and 36.5% (from 37.5%), respectively, resulting in an effective corporate tax rate of 10.668% on GILTI (from 10.5%) and 13.335% on FDII (from 13.125%).

Proposed changes to BEAT

For tax years beginning after December 31, 2025, the House Bill would increase the BEAT rate from 10% to 10.1% (or 11.1% for members of affiliated groups that include a bank or registered securities dealer).

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Endnote

1 The Report of the Committee on the Budget accompanying the House Bill includes footnotes on proposed IRC Section 899 that were not present in the earlier report from the Joint Committee on Taxation, which accompanied the original proposal. For example, one footnote explains that proposed IRC Section 899 would not apply to income that is explicitly excluded from the application of the specified tax because it would only increase the specified rates of tax. As an example, the footnote notes that the provision would not apply to portfolio interest that is excluded from the tax imposed on fixed or determinable annual or periodical gains, profits and income. The footnote contrasts this with certain categories of income that are subject to a reduced or zero rate of tax in lieu of statutory rate, such as amounts that are exempt or subject to a reduced or zero rate of tax under an applicable US income tax treaty.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United States), International Tax and Transaction Services

Published by NTD’s Tax Technical Knowledge Services group; Maureen Sanelli, legal editor

Document ID: 2025-1143

 

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