Tax Code Tweak Keeps Foreign-Derived Income Deduction Steady: 'Growing and Preserving Innovation in America Act of 2025' Enacted

The "Growing and Preserving Innovation in America Act of 2025" focuses on a single, but potentially significant, change to the tax code: it cancels a previously scheduled reduction in the tax deduction for foreign-derived intangible income (FDII). Basically, this means the tax break companies get for income earned from intangible assets (like patents or copyrights) held overseas won't shrink as was planned.

Nixing the Deduction Drop

This Act amends Section 250(a)(3) of the Internal Revenue Code. Instead of letting the deduction for FDII decrease, the bill keeps the key percentage used in the calculation at 37.5%. This change is effective immediately upon the Act's enactment. So, what does that mean in practice? A company exporting software, with the underlying intellectual property held in the US, would continue to benefit from a larger deduction than if the scheduled reduction had gone through.

Real-World Ripple Effects

For multinational corporations, this is likely a welcome move. It provides more certainty and potentially encourages them to keep (or bring back) valuable intellectual property within the United States. Think of a pharmaceutical company with patents on a new drug: this bill could influence where they decide to base their operations and research and development.

The Bottom Line and Potential Bumps

While this change simplifies things for companies dealing with FDII, it also opens the door to some potential downsides. Some companies might try to aggressively shift profits overseas to maximize this deduction. It's a balancing act – incentivizing domestic innovation while preventing tax avoidance. The long-term effects on investment in domestic R&D and overall tax revenue will be something to watch.