Here’s what HIVE AI had to say about “What are 2025 compliance updates for cross-border sales?”:

2025 compliance updates for cross‑border sales

Inventory sourcing and foreign tax credit interactions

• New sourcing rule for U.S.-produced inventory sold through a foreign branch: up to 50% of income from qualifying sales can be treated as foreign-source for section 904 limitation purposes, effective for tax years beginning after December 31, 2025. This targets cases where a U.S. person has a foreign office that materially participates in selling inventory produced in the U.S. 1
• Final FTC regulations continue to police IP/branch structuring; the government retained the post-2018 IP transfer rule (with a transitory ownership exception) to prevent avoidance, acknowledging higher compliance costs but justifying them to preserve policy integrity. Practical point: due diligence on branch-IP histories still matters for FTC baskets and creditability. 2

FDII/GILTI rebranding and alignment with global minimum tax

• The One Big Beautiful Bill recasts FDII as “foreign-derived deduction eligible income (FDDEI)” and GILTI as “net CFC-tested income (NCTI)” beginning in 2026, with rates and scope adjusted; this is part of U.S. alignment pressure amid OECD Pillar Two adoption abroad. 2025 planning should model 2026 effects on export incentives and CFC minimum taxes. 3

Digital content and cloud transactions: characterization for international rules

• Final regulations summarized in Notice 2025-6 extend the 1998 software characterization framework to “digital content,” and treat cloud transactions as services under §1.861-19. The rules apply for listed international provisions (including §§59A, 245A, 250, 267A, and chapter 4). Compliance takeaway: revisit cross‑border license vs. service character, withholding, sourcing, FDDEI/§250 computations, and BEAT exposure for mixed offerings using the “predominant character” rule. 4

OECD Amount B-style distributor safe harbor: U.S. implementation path

• Notice 2025-4 previews proposed regulations for certain controlled distributor transactions (aligned with the OECD Amount B report) with anticipated applicability to tax years beginning on or after January 1, 2025. Multinationals should evaluate whether routine distribution returns fall within the forthcoming safe-harbor framework and prepare contemporaneous files to match the definitions in the notice. 5

CFC “look‑through” made permanent

• The related CFC look‑through rule under §954(c)(6) is made permanent for CFC years beginning after December 31, 2025, preserving favorable treatment for certain payments between related CFCs. Plan for consistent Subpart F/anti‑deferral modeling from 2026 forward. 6

Section 250 and foreign use limitations

• For FDDEI (formerly FDII), property sold to a domestic intermediary for further U.S. manufacture or modification is not treated as sold for foreign use even if later exported. This restricts “round‑trip” foreign-use claims in common supply chains. 7

Digital asset broker reporting and withholding with cross‑border implications

• Additional transition relief: brokers are not required to backup withhold on digital asset sales in 2026; limited relief extends into 2027 if name/TIN matches under the IRS TIN Matching Program, with special relief for value declines in withheld digital assets and classification of pre-2026 foreign accounts. Non‑U.S. customers’ documentation and residency evidence remain critical. 8
• Notice 2025-33 details extended timing and treatment of exempt foreign persons for accounts opened before 2026, recognizing system buildout needs for section 6045 reporting and backup withholding. Align onboarding/KYC, W‑8 flows, and residency checks accordingly. 9

Outbound/inbound transfers and required filings

• Reporting for outbound transfers to foreign corporations or partnerships remains a high‑risk area; failures can toll the statute of limitations under §6501(c)(8). Ensure timely Form 926/Form 8865 reporting for appreciated property and contributions to foreign entities, with copies to the Director, Cross Border Activities, when applicable. 10
• §245A anti‑hybrid/extraordinary disposition rules continue to apply to tax years of foreign corporations beginning on or after December 1, 2020; review dividends/ECTI planning for holding company structures and hybrid instruments. 11

Compliance administration and dispute‑prevention tools

• The IRS expanded eligibility and international issue handling in the 2025 Compliance Assurance Process (CAP). Large multinationals can pre‑clear international positions and reduce exam risk for cross‑border issues. 12
• The IRS has also released small entity compliance guides for final rules requiring a FRFA, including DCL/foreign tax minimums—useful for mid‑market groups navigating cross‑border loss and minimum tax mechanics. 13

Individual and controller-level reminders affecting cross‑border operations

• FBAR (FinCEN Form 114) threshold and 2025 deadlines: April 15 with automatic extension to October 15. Controllers and signatories on foreign cash accounts used in commerce should validate account mappings and monitoring. 14

Action checklist for 2025

• Map digital offerings to “digital content” vs. “cloud” and re-test withholding, sourcing, §250/FDDEI eligibility, and BEAT metrics under the predominant character rule. 4
• Update transfer pricing for routine distributors to anticipate 2025 applicability and documentation under the forthcoming U.S. Amount B rules. 5
• Model 2026 FDDEI/NCTI impacts and Pillar Two interactions; stress test foreign tax credit limitation with new inventory sourcing for foreign-branch sales starting with 2026 tax years. 1
• Refresh §954(c)(6) look‑through assumptions for 2026+ cash and royalty flows among CFCs. 6
• Tighten 2026‑2027 digital asset broker protocols for cross‑border clients (W‑8/W‑9, TIN matching, backup withholding logic, and “exempt foreign person” criteria). 8

Sources

1 – One Big Beautiful Bill Act Sec. 70313. Sourcing certain income from the sale of inventory produced in the United States 📄 Summarize
2 – TD 9882 📄 Summarize
3 – Tax Foundation 📄 Summarize
4 – Notice 2025-6 📄 Summarize
5 – Notice 2025-4 📄 Summarize
6 – One Big Beautiful Bill Act Sec. 70351. Permanent extension of look-thru rule for related controlled foreign corporations 📄 Summarize
7 – IRC § 250(b) 📄 Summarize
8 – IRS Newsroom – IR-2025-67 📄 Summarize
9 – Notice 2025-33 📄 Summarize
10 – Treasury Regulation 1.6038B-2 📄 Summarize
11 – Treasury Regulation 1.245A-11 📄 Summarize
12 – IRS Newsroom – IR-2024-211 📄 Summarize
13 – IRS.gov – Small entity compliance guides 📄 Summarize
14 – IRS Newsroom – IR-2025-61 📄 Summarize

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