BEAT, GILTI, and FDII calculations under new rules

by | Sep 20, 2025 | Business Taxes

Here’s what HIVE AI had to say about “BEAT, GILTI, and FDII calculations under new rules”:

BEAT, GILTI, and FDII calculations under the new rules

Below is a practical framework to compute each regime, highlight interactions, and reflect changes made by the One Big Beautiful Bill Act (OBBBA). Where OBBBA adjusted parameters effective for tax years beginning after 12/31/2025, I note those new amounts.

GILTI

What to compute

  • Tested income, tested loss, QBAI, tested interest items at the CFC level
  • U.S. shareholder’s GILTI inclusion amount
  • Section 78 gross-up related to GILTI foreign taxes
  • Section 250(a)(1)(B) GILTI deduction percentage
  • Foreign tax credit limitation and haircut

How to compute (mechanics)

  • Compute the U.S. shareholder’s GILTI inclusion per section 951A and regulations. If in a consolidated group, apply consolidated GILTI mechanics under Reg. §1.1502-51, including group-level QBAI and member allocation by the GILTI allocation ratio. 1
  • Recall: GILTI for a domestic corporation is its “GILTI inclusion amount under §1.951A-1(c)” for the year, per §1.250(a)-1(c)(3), and the FDII rule structure defines DII, DEI, DTIR, and foreign-derived ratio used for §250. 2
  • Section 250 deduction for GILTI is computed on Form 8993. The form aggregates FDII and GILTI, applies the taxable income limitation, allocates the limitation between FDII and GILTI (“FDII reduction” and “GILTI reduction”), then applies the GILTI deduction percentage to the remainder and includes the §78 gross-up attributable to GILTI in the base for the deduction per instructions. 3 4

What changed under OBBBA

  • Section 250 GILTI deduction percentage adjusts beginning with tax years after 12/31/2025. OBBBA sets the GILTI and FDII effective rates to about 14–15% starting 2026, reflecting permanent, adjusted deduction percentages and related FTC/“haircut” tweaks. Practically, this means your §250(a)(1)(B) factor declines from 50% to 40% beginning with tax years after 12/31/2025. 5 6 7

Implementation tips

  • Maintain CFC-by-CFC tested income data and QBAI, interest items, and tested loss absorption.
  • Confirm the §78 gross-up amount attributable to GILTI flows into the §250 deduction base per instructions. 4
  • If in a consolidated group, follow Reg. §1.1502-51 for consolidated QBAI and allocation. 1

FDII

What to compute

  • Deduction eligible income (DEI)
  • Deemed tangible income return (DTIR = 10% of QBAI)
  • Deemed intangible income (DII = DEI – DTIR)
  • Foreign-derived deduction eligible income (FDDEI)
  • Foreign-derived ratio (FDR = FDDEI / DEI)
  • FDII = DII × FDR
  • Section 250(a)(1)(A) FDII deduction percentage

How to compute (mechanics)

  • Treasury regs define FDII as DII × FDR; the rules define DEI, DTIR (10% QBAI), FDDEI, and documentation for foreign person/foreign use. 8
  • Compute on Form 8993; apply the taxable income limitation mechanics via FDII reduction and GILTI reduction worksheets in the instructions. 3 9 4

What changed under OBBBA

  • Section 250 FDII deduction percentage drops from 37.5% to 33.34% for tax years beginning after 12/31/2025, aligning FDII’s effective rate with GILTI’s target band. This also removes the scheduled TCJA increase that would have otherwise raised the FDII effective rate. 5 7

Implementation tips

  • Maintain robust documentation for “foreign person” and “foreign use” to support FDDEI. 9
  • Watch the taxable income limitation; Form 8993’s Line 26/27 reduction mechanics allocate scarce taxable income between FDII and GILTI. 4

BEAT

What to compute

  • Applicability: large gross receipts threshold and base erosion percentage
  • Modified taxable income (MTI)
  • BEAT liability: BEAT rate × MTI minus regular tax liability (with BEAT-specific rules on credits)

Core concept under current regs

  • BEAT under section 59A re-computes tax on MTI by adding back “base erosion tax benefits” (generally certain deductible payments to foreign related parties) and then applies the BEAT rate; compare to regular tax to find incremental BEAT. CFC/Subpart F/GILTI income inclusions do not provide an “ECI-like” exception for payments to CFCs—Treasury rejected comments seeking to exclude subpart F/GILTI in BEAT, distinguishing from ECI and TLAC-specific carveouts. 10

What changed under OBBBA

  • The BEAT minimum rate is made permanent at 10.5%, per analysis of the enacted bill. This sets a stable floor for modeling prospective BEAT exposure.

Filing architecture and forms

Primary forms

  • GILTI inclusion and computations: Form 8992 and Form 1118 for FTCs; section 78 gross-up flows to 1120
  • Section 250 deductions for FDII and GILTI: Form 8993 integrates FDII math, taxable income limitation allocations, and computes §250 deductions reported on Form 1120 Schedule C. 3 4

Planning notes under the new regime

Rate and deduction shifts after 2025

  • From 2026, FDII and GILTI deduction percentages are reduced, targeting a ~14–15% effective rate; plan for higher U.S. residual on low-taxed CFC income and slightly lower FDII benefit. 5 7

Interactions and constraints

  • Taxable income limitation for §250 can constrain both FDII and GILTI deductions; ordering is handled by Form 8993 reductions. 4
  • BEAT remains sensitive to related-party outbound payments. CFC/Subpart F/GILTI inclusions do not create a general exception for those payments in BEAT. 10

Administrative and documentation

  • FDII documentation: foreign person/foreign use substantiation to sustain FDDEI percentage. 9
  • Consolidated groups: ensure correct consolidated QBAI and allocation per §1.1502-51. 1

Quick computational checklist

GILTI

  • Compile CFC tested income/loss, QBAI, interest items.
  • Compute inclusion per §951A regs; add §78 gross-up.
  • Compute §250 GILTI deduction on Form 8993 after taxable income limitation. 3 4

FDII

  • Compute DEI, DTIR (10% QBAI), DII; compute FDDEI and FDR; FDII = DII × FDR.
  • Apply §250 FDII deduction percentage on Form 8993 after limitation mechanics. 8 9

BEAT

  • Confirm BEAT-applicability thresholds.
  • Identify base erosion payments/benefits; compute MTI.
  • Compute BEAT liability at the now-permanent 10.5% minimum rate and compare to regular tax. 10

If you share your facts (domestic parent status, consolidated group, CFC profile, QBAI, foreign taxes, FDDEI mix, and related-party outbound payments), I can run sample computations showing the exact §250 deductions under both 2025 and 2026 rules and quantify any BEAT exposure.

Sources

1 – Treasury Regulation 1.1502-51 📄 Summarize
2 – T.D. 9901 📄 Summarize
3 – IRS – Form 8993 Section 250 Deduction for Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) 📄 Summarize
4 – IRS.gov – Instructions for Form 8993 (12/2024) 📄 Summarize
5 – One Big Beautiful Bill Act Sec. 70321. Modification of deduction for foreign-derived deduction eligible income and net CFC tested income 📄 Summarize
6 – Tax Foundation 📄 Summarize
7 – Tax Foundation 📄 Summarize
8 – Treasury Regulation 1.250(b)-1 📄 Summarize
9 – IRS – Instruction 8993 Instructions for Form 8993, Section 250 Deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) 📄 Summarize
10 – T.D. 9885 📄 Summarize

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