New Corporate Tax Bill Eliminates Foreign Tax Credit Haircut and Cuts Taxes on Overseas Earnings Starting in 2026

The “International Competition for American Jobs Act” is a major overhaul of how U.S. multinational corporations are taxed on their overseas earnings. If you’re a regular person paying taxes, this bill doesn’t touch your W-2 or 1040, but it’s a big deal for the global players—the companies that employ millions and shape the economy.

This bill, which largely takes effect for tax years starting after December 31, 2025, is primarily aimed at making it cheaper for U.S. companies to earn and repatriate profits from outside the country. It achieves this by reducing the tax bite on foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI), and by rolling back several key limitations put in place by previous tax reforms.

The End of the GILTI Tax Haircut

One of the most significant changes is the elimination of the 80% limitation on foreign tax credits (FTCs) related to GILTI income (Sec. 9). Right now, if a U.S. company pays $100 in foreign taxes on its GILTI income, it can only claim $80 as a credit against its U.S. tax bill. That remaining $20 is often called the “haircut,” and it was designed to ensure that even if a company paid some tax overseas, it still paid a minimum U.S. tax on those profits.

This bill scraps that haircut entirely. Starting in 2026, companies can claim 100% of those foreign taxes as a credit. For a multinational corporation, this is huge: it drastically reduces their effective tax rate on foreign profits, making the U.S. tax system much more favorable for retaining earnings overseas or bringing them back home. The intended effect is to boost the competitiveness of U.S. corporations, but the practical effect is a significant reduction in tax revenue flowing to the U.S. Treasury.

Making Foreign Income Deductions More Generous

The bill also tweaks the deductions U.S. companies can take for certain foreign income (Sec. 3). For example, it permanently extends the “look-thru rule” (Sec. 2), which allows certain income flows between controlled foreign corporations (CFCs) to pass through without immediate U.S. taxation. This provides certainty and flexibility for companies managing complex international structures.

More importantly, the bill increases the deduction percentages for FDII and GILTI income. While the exact new percentages are complex, the result is clear: U.S. companies will be able to deduct a larger portion of this foreign income, further lowering their taxable base. However, the bill does try to tighten up one area: it requires that when calculating these deductions, companies can only account for expenses that are directly related to the gross income they are trying to deduct. This is a technical move that could prevent companies from allocating unrelated domestic costs against their foreign income.

BEAT Goes Easy on High-Tax Payments

The Base Erosion and Minimum Tax (BEAT) was designed to stop U.S. companies from shifting profits overseas to related foreign entities through deductible payments (like royalties or service fees). This bill introduces major exceptions to the BEAT (Sec. 4) that could significantly soften its impact.

Crucially, a payment to a foreign affiliate will no longer count toward the base erosion amount if the company can prove that the payment was subject to an effective foreign income tax rate of at least 18.9 percent. Think of it like this: if a company is paying a high enough tax rate overseas (18.9% or higher), the U.S. says, “Okay, you’re not trying to evade taxes, so we won’t hit you with the BEAT.” This is a significant change that rewards companies operating in high-tax foreign jurisdictions, potentially reducing the overall effectiveness of the BEAT.

Cutting Out Tax on Foreign Sales and Services

In a move that simplifies the tax code for multinationals but reduces taxable income, the bill eliminates the rules that previously included “foreign base company sales income” and “foreign base company services income” as taxable income for U.S. shareholders (Sec. 11). These rules were part of the original Subpart F regime designed to prevent companies from shifting passive income to tax havens.

By removing these categories, the bill makes it easier for U.S. companies to structure their international sales and service operations without triggering immediate U.S. tax liability. For a company that manages global supply chains or provides international consulting, this means less immediate tax burden and simpler compliance. While this is a win for corporate accounting departments, it means fewer types of foreign income are subject to U.S. taxation.

What This Means for the Rest of Us

This bill is a clear win for U.S. multinational corporations, offering substantial tax relief and flexibility on their foreign earnings starting in 2026. By eliminating the GILTI haircut and softening the BEAT, it makes the U.S. a much more competitive place for managing global profits. The trade-off, however, is a reduction in U.S. tax revenue. While proponents argue this will lead to more investment and jobs in the U.S., the immediate, guaranteed impact is lower corporate tax bills.

If you run a business focused solely on the domestic market, this bill doesn’t help you directly. In fact, it widens the gap between the tax treatment of purely domestic companies and those with vast international operations. It also introduces new, complex definitions regarding “foreign controlled” entities (Sec. 6) and makes dozens of technical adjustments to foreign tax credit baskets, ensuring that the compliance burden for international tax specialists remains high, even as the tax burden on the corporations themselves decreases.