President Trump on 4 July signed into law a massive budget reconciliation bill (H.R. 1) to extend Tax Cuts and Jobs Act (TCJA) provisions beyond 2025 and cut mandatory spending. The Senate voted on its version of the budget reconciliation bill on 1 July and on 3 July the House ultimately voted in favor of the Senate version, which was similar but included changes to the original House bill. The wide-ranging legislation makes permanent the TCJA pre-cliffs on bonus depreciation, IRC Section 163(j) interest deductibility and IRC Section 174 research and development (R&D) expensing, in addition to increasing amounts for the standard deduction and Child Tax Credit, all of which were temporary in the House bill. It also maintains the IRC Section 199A pass-through deduction at 20%. The enrolled bill text is available here.

The legislation includes significant changes to the US international tax regime.

GILTI

The bill amends the global intangible low-taxed income (GILTI) provision by providing a reduced 40% GILTI deduction for tax years beginning after 31 December 2025 and the GILTI foreign tax credit (FTC) haircut is reduced to 10%. The bill's changes will result in a 14% GILTI effective tax rate. Other changes to GILTI include no apportionment of interest deductions for GILTI foreign tax credit purposes (although "directly allocable" expenses are still allocated) and elimination of the qualified business asset investment (QBAI) exemption.

FDII

The foreign-derived intangible income (FDII) deduction — now renamed "foreign derived deduction eligible income" (FDDEI) — is reduced to 33.34% (increasing the effective rate to 14%) for tax years beginning after 31 December 2025. The legislation further modifies the FDII provision by providing no allocation of interest and research and experimental deductions, although other "properly allocable" expenses are still allocated. The bill eliminates the QBAI exemption and provides a carve-out for sales or other dispositions (other than by license) of IRC Section 367(d) intangibles and property subject to depreciation/amortization. The carve-out applies to transactions after 16 June 2025.

BEAT

The final legislation includes important modifications to the base erosion and anti-abuse tax (BEAT). It slightly increases the BEAT rate from 10% to a permanent 10.5% (a 1% higher rate applies for banks/securities dealers) and eliminates unfavorable treatment of R&D and certain other credits that had been scheduled to apply for tax years beginning after 31 December 2025. There is no reduction to the base-erosion threshold, no high-tax exception and no inclusion of capitalized interest, as proposed in earlier versions of the bill.

H.R. 1 also includes a number of other US international tax changes, including making permanent the IRC Section 954(c)(6) controlled foreign corporation (CFC)-to-CFC look-through exception and elimination of the one-month deferral election in IRC Section 898(c) for determining a CFC's tax year, including a grant of regulatory authority to apportion taxes. Congress also enacted a partial repeal of IRC Section 863(b) solely for FTC purposes, providing that certain US-produced inventory sold abroad can be treated as up to 50% foreign source. Other enacted changes include reinstatement of downward attribution under IRC Section 958(b)(4) and introduction of new IRC Section 951B, which extends the CFC inclusion rule.

The legislation provides other modifications to the US international tax regime, but perhaps most noteworthy was the removal of proposed IRC Section 899 — the so-called retaliation tax — from consideration in the bill (as discussed below). A detailed Tax Alert on the international tax provisions in H.R. 1 is pending.

With the enactment of H.R. 1, attention will now turn to implementation and enforcement of the bill's provisions, a renewed focus on trade — given tariff deadlines — and perhaps even a follow-on budget reconciliation bill in the fall.

The G-7 on 28 June issued a statement on global minimum taxes. The statement responded to issues outlined earlier by US Treasury Secretary Scott Bessent, who set out a proposed "side-by-side" solution for base erosion and profit shifting (BEPS) Pillar Two to address US concerns and in recognition of existing US minimum tax rules.

The G7 stated that a "side-by-side" solution could preserve gains made by jurisdictions in tackling BEPS and provide clarity and stability in the international tax landscape. In conjunction with this new approach, the Trump Administration agreed not to include proposed IRC Section 899 in the then-pending US budget reconciliation bill to facilitate follow-up discussions in the BEPS 2.0 Inclusive Framework.

The shared understanding is based on four "accepted" principles, which include the exclusion of US-parented groups from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR), as well as commitments to address risks related to BEPS and the level playing field, the parallel delivery of material simplifications and the desire to address the disadvantageous treatment of substance-based nonrefundable tax credits. The OECD Secretary-General welcomed the G7's breakthrough statement, noting its potential to enhance fairness and effectiveness in global tax systems. A Global Tax Alert provides details.

On 7 July 2025, President Trump signed an Executive Order extending country-specific tariff rates from the original deadline of 9 July 2025 to 1 August 2025. The President also issued "tariff letters," introducing new country-specific tariffs ranging from 25% to 40% to 14 countries as an ongoing effort to reach bilateral agreements ahead of the new deadline.

The letters indicated that current and future sectoral tariffs imposed under Sec. 232 authority would be exempt from these tariff rates, and that any retaliatory action from US trading partners would result in another rate increase.

President Trump explained in a Fact Sheet, also issued on 7 July, that the action is intended to push for fairer trade terms and reduce trade deficits. It is not immediately clear how the President selected this list of 14 countries, but the White House has suggested that other trading partners are likely to receive similar letters before 1 August. A Global Trade Alert has details.

In other trade news, Canada on 29 June announced plans to rescind its Digital Services Tax (DST), reportedly to preserve ongoing trade talks with the United States. According to a Canadian government website, the Canada Revenue Agency (CRS) "will not require businesses to file a DST return or pay any amounts owing by June 30, 2025." A Global Tax Alert has details.

Treasury and the IRS on 11 July revoked crypto-reporting final regulations (T.D. 10021) that were published on 30 December 2024. President Trump on 10 April 2025 signed H.J. Res. 25, repealing the final regulations under authority provided by the Congressional Review Act (CRA). The final regulations required some cryptocurrency platforms to report their customers' transactions to the IRS, starting with tax year 2027. The CRA allows the repeal of agency regulations if the resolution is acted upon within a certain timeframe following the rule's publication in the Federal Register.

The IRS in Notice 2025-36 also announced that 83 pieces of guidance related to amended or repealed code provisions are obsolete. The Notice, released on 3 July, covers notices, announcements, revenue procedures and revenue rulings.