11 Dec
Member News

PwC | Highlights of Treasury Guidance on OBBBA International Tax Items

What happened?

Treasury and the IRS on December 4 issued three Notices—2025-75, 2025-77, and 2025-78—providing early guidance on several international tax provisions enacted as part of the One Big Beautiful Bill Act (the Act or OBBBA).

  • Notice 2025-75 announces the intent to issue proposed regulations implementing the transition rule under Section 70354(c)(2) of the Act. The transition rule affects how Section 951(a)(2)(B) reductions apply for certain dividends paid by controlled foreign corporations (CFCs) in tax years beginning before January 1, 2026.
  • Notice 2025-77 provides interim guidance on the implementation of Section 960(d)(4), a new rule enacted by the Act that disallows 10% of foreign tax credits (FTCs) associated with certain previously taxed earnings and profits (PTEP) distributions tied to Section 951A inclusions.
  • Notice 2025-78 announces forthcoming proposed regulations interpreting a new exclusion from deduction eligible income (DEI) for income or gain from the sale or other disposition of certain intangible and depreciable, amortizable, or depletable property under Section 250(b)(3)(A)(i)(VII). This provision generally removes that income from the foreign derived deduction eligible income (FDDEI) benefit calculation for transactions occurring after June 16, 2025.

Why is it relevant?

Notice 2025-75 interprets the scope of dividends subject to the transition rule, including dividends that otherwise may be excluded from gross income or benefit from special deductions (e.g., Section 245A). It also introduces look-through mechanisms for partnerships and tiered structures to ensure that the analysis follows economic ownership and inclusion. Finally, it imposes substantiation requirements on taxpayers who claim that particular dividends increase US tax income in order to apply Section 951(a)(2)(B) to reduce subpart F or GILTI inclusions.

Notice 2025-77 addresses the benefit available under prior law when PTEP attributable to GILTI inclusions were distributed. The notice also clarifies timing rules and interaction with existing regulations, particularly those under Reg. 1.960-3 and the 2024 proposed PTEP regulations. It includes a transition rule and detailed examples of how the 10% disallowance works.

Notice 2025-78 interprets the Act’s narrowing of what qualifies for FDDEI, particularly affecting sales or dispositions of intellectual property and certain business property. The guidance also clarifies the treatment of inventory, related-party transactions, and consolidations for purposes of the Section 250 deduction.

Actions to consider

Taxpayers should review their ownership transitions, dividend transactions, and CFC restructurings occurring between June 28, 2025 through December 31, 2025 for tax years of a CFC that either (1) include June 28, 2025 or (2) begin after June 28, 2025, but before that CFC’s first tax year beginning after December 31, 2025, and prepare to comply with the documentation and reporting requirements applicable to the new Section 951(a)(2)(B) transition rule.

Taxpayers should review their Section 951A inclusions and PTEP tracking for years ending after June 28, 2025, and evaluate the FTC disallowance under Section 960(d)(4).

Taxpayers should review any sales or dispositions of intangible or depreciable property after June 16, 2025, and assess the impact on their FDDEI computations. Taxpayers should carefully evaluate whether transfers of intangible property qualify as sales or licenses because income from sales would be excluded from DEI while income from transfers of licenses would remain DEI.

Treasury and the IRS allow reliance on each of the notices before the proposed regulations are published, provided each notice is followed consistently and entirely.

 

 

 

 

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