International tax law is undergoing some significant changes. Under the One Big Beautiful Bill Act (O3B), new rules like the U.S. remittance tax and updated controlled foreign corporation provisions will reshape how individuals and businesses handle cross-border transactions. In this audio blog, we break down the major updates, explain their potential impact and share strategies to help you stay compliant.

Transcript:

Welcome everyone to this edition of CK Thought Leadership. My name is Eric Challenger. I’m a tax manager here at Cray Kaiser and I’m joined by Damian Contreras.

Hi everyone. As Eric said, my name is Damian Contreras. I’m a tax senior at Cray Kaiser. I’ve been here for a little over three years and started as an intern.

Today we are diving into some major updates to international tax regulations recently enacted under the One Big Beautiful Bill Act, also known as O3B. We’ll cover the new remittance tax, explain what a controlled foreign corporation is, go over the changes to guilty, and wrap up with some important foreign reporting reminders. Let’s kick things off with a new and intriguing remittance tax. Damian, can you walk us through this piece of legislation and what it means?

Absolutely, Eric. The remittance tax, while new in the U.S. effective January 1st, 2026, isn’t entirely new globally. Several other countries already have similar systems in place. Let’s focus how this will work in the U.S. Remittance tax is a 1% tax on funds sent out of the U.S. for non-commercial purposes, that is personal, not business-related transfers. The sender is responsible for the tax unless an exemption applies to them. The facilitator of the transfer, common groups are Western Union, PayPal, or money orders sent, is responsible for collecting and remitting the tax to the U.S. Treasury on a quarterly basis. If the facilitator fails to collect the tax, they’re still liable for the tax’s due. The tax applies to cash transfers and cash equivalence exceeding $15. Notably, cryptocurrency transactions and transfers are currently excluded from this tax. So what qualifies for an exemption? Transfers funded by a US-issued debit or credit card or transfers withdrawn from an account held in an institution subject to the Bank Security Act. While we’re talking about new international tax provisions, what’s happening to the old ones? I saw there were changes to guilty now renamed net CFC tested income taking effect in 2026. Can you first explain what a CFC is and then we could dive deeper into what’s changing?

Yeah, this is a big update. Let’s start with the basics. A controlled foreign corporation CFC is a foreign corporation that is more than 50% owned by U.S. shareholders which may include corporations and individuals. U.S. shareholders who own at least 10% of a CFC are required to report their share of the NCTI, previously known as Guilty, on their annual tax returns. These rules primarily impact U.S. multinational corporations and individuals with substantial foreign investments. So even if you’re not a big business, it’s something to be aware of if you’re planning to invest abroad.

Eric, now that we understand what a CFC is and what exactly guilty, you know, net CFC tested income is under the new law, what’s changing?

Great question. The guilty provisions were introduced under the 2017 Tax Cuts and Jobs Act to discourage U.S. companies from shifting profits offshore and avoiding U.S. taxation. Guilty imposed a minimum tax on profits from CFCs regardless of whether those profits were brought back to the U.S. Under O3B Act, these rules are being tightened significantly. Key changes include country-by-country calculation of Guilty, now NCTI. Previously, companies could offset low tax income with high tax income across countries. That’s no longer allowed, which increases the exposure for low-tax jurisdictions. The qualified business asset investment deduction is being phased out and eliminated. The foreign derived intangible income FD2 deduction is being reduced. Formally 50%, it’s now 37.5% which raises the effective tax rate from 10.5% to 13.125%. The high tax exception threshold is increasing from 18.9% to 21%, aligning it with the U.S. corporate tax rate. One piece of slight relief, the foreign tax credit limitation is being loosened from 80% to 90%. Originally the cut was 80%, but now it’s going to be reduced to 90%, meaning that taxpayers can now use more of their eligible foreign taxes to offset U.S. taxes. Bottom line, the overall U.S. tax burden on CFC income is going up, and affected shareholders will start to feel this on their returns beginning in 2026.

Now that’s a lot to digest. What advice do you have for multinational corporations or individuals who may be impacted by these changes?

As these changes are implemented over the next year, it’s critical that both multinational corporations and individuals work closely with their tax advisors. Strategic planning now can help minimize exposure under the new NCTI framework and ensure compliance moving forward.

Absolutely. On that note, let’s not forget the penalties. Failing to comply with foreign tax reporting rules can be very costly. Penalties start at $10,000 per violation and can add up quickly. And it’s not just Guilty that we’re talking about. These penalties apply to the F-bar, foreign bank account reporting, foreign financial asset reporting, and needed CFC disclosures. So if you even think you might have an international reporting obligation, reach out to your advisor. Don’t risk non-compliance in this fast-evolving tax environment.

Well, thanks for tuning in to the CK Audio Blog on International Tax Changes under O3B. For more information on how these updates may affect your business or personal tax situation, visit us at www.craykaiser.com or give us a call at 630-953-4900.