From GILTI to NCTI: What the OBBBA Changes Mean for U.S. Multinationals in 2026

Effective for tax years beginning after December 31, 2025, the One Big Beautiful Bill Act (OBBBA) retired the Global Intangible Low-Taxed Income (GILTI) regime introduced by the 2017 Tax Cuts and Jobs Act (TCJA) and replaced it with a revised framework called Net CFC Tested Income (NCTI). While GILTI and NCTI share the same basic architecture, a current inclusion of a U.S. shareholder’s pro rata share of controlled foreign corporation (CFC) income, the OBBBA made several substantive changes that broaden the tax base, adjust the deduction rate, improve access to foreign tax credits (FTCs), and narrow the expenses allocable against the NCTI basket for FTC limitation purposes. The net result is a higher effective tax rate on foreign earnings but, in many cases, a meaningfully better ability to use foreign taxes paid by CFCs to offset U.S. tax. Here’s what U.S. multinationals need to know.

What Is NCTI? How It Replaces GILTI Under the OBBBA

The most visible change is the rename. “GILTI” is replaced by the more neutral “net CFC tested income” (NCTI), reflecting the broader scope of income now captured. But the change goes beyond nomenclature.

Elimination of the QBAI Deduction: All Net CFC Earnings Now  Subject to NCTI

Under the TCJA, a U.S. shareholder could reduce its GILTI inclusion by a net deemed tangible income return (DTIR) equal to 10% of the CFC’s qualified business asset investment (QBAI), reduced by deductible interest expense. This exclusion was designed to spare a “normal” return on tangible assets, such as factories, equipment, and real property, from the GILTI net, leaving only returns deemed attributable to intangible assets in scope.

OBBBA § 101 eliminates the QBAI/DTIR exclusion entirely for CFC tax years beginning after December 31, 2025. I.R.C. § 951A(b)(2) (as amended). Every dollar of a CFC’s net tested income is now potentially subject to NCTI inclusion, regardless of how capital-intensive the foreign business is. For multinationals with extensive global manufacturing or distribution infrastructure, precisely the businesses the QBAI was designed to protect, the loss of this exclusion can dramatically increase the NCTI inclusion amount.

NCTI Section 250 Deduction Drops to 40%, Raising the Effective Rate to 12.6%

Once a U.S. corporation determines its NCTI inclusion, it may claim a deduction under I.R.C. § 250. Under the TCJA, that deduction was 50% of the GILTI inclusion, yielding a 10.5% effective federal rate (21% × 50%). The OBBBA permanently reduces the Section 250 deduction for NCTI to 40%, effective for taxable years beginning after December 31, 2025. OBBBA § 100; I.R.C. § 250(a)(1)(B) (as amended). The effective federal rate on NCTI before FTCs rises accordingly to 12.6% (21% × 60%).

For context, the TCJA’s own sunset provisions would have dropped the deduction to 37.5% in tax years beginning after 2025, producing a 13.125% effective rate. The OBBBA’s permanent 40% is modestly more favorable than that cliff, but it is less favorable than the 50% rate that applied through 2025.

NCTI Foreign Tax Credit Haircut Falls to 10%, Improving FTC Access

The TCJA imposed a structural 20% haircut on deemed-paid FTCs arising from GILTI, meaning only 80% of a CFC’s foreign income taxes were creditable against the U.S. GILTI liability. The OBBBA narrows that haircut to 10%, making 90% of a CFC’s foreign income taxes potentially creditable against the U.S. NCTI liability. OBBBA § 102; I.R.C. § 960(d)(1) (as amended). This improvement is available only to C corporations and to individuals making a Section 962 election.

The practical consequence is that a CFC must now pay foreign income taxes at an effective rate of approximately 14% before foreign taxes fully shelter the U.S. NCTI inclusion, up from approximately 13.125% under the pre-OBBBA framework.

Interest and R&E Expenses No Longer Allocated to the NCTI Basket

Perhaps the most consequential change for large U.S. multinationals is the overhaul of expense allocation rules for the NCTI foreign tax credit basket. Under the TCJA, interest expense and research and experimental (R&E) expenditures were allocated and apportioned to the GILTI basket under the Treasury’s Section 861 regulations. This allocation systematically reduced the FTC limitation available to U.S. shareholders. For capital-intensive or R&D-heavy companies, it could substantially erode or completely eliminate the ability to use FTCs to shelter GILTI income (which was made all the worse by the fact that GILTI basket credits do not carry forward).

The OBBBA adds I.R.C. § 904(b)(5), which statutorily prohibits the allocation or apportionment of interest expense and R&E expenditures to the NCTI basket for FTC limitation purposes. P.L. 119-21, § 70311. Any such amounts that would previously have been allocated to the NCTI basket are instead allocated to U.S.-source income, effective for taxable years beginning after December 31, 2025.

Under the revised framework, only two categories of expense remain allocable against the NCTI basket for FTC purposes:

1. The Section 250 deduction for NCTI (and the related Section 78 gross-up); and
2. Expenses that are “directly allocable” to NCTI income. Treasury guidance on the scope of this category, including whether stewardship and SG&A costs qualify, is expected.

For multinationals with significant debt loads or R&D-intensive operations, this change can meaningfully increase the FTC limitation available for NCTI. By moving interest and R&E out of the NCTI basket, more of those deductions shift to reduce the U.S.-source income side of the FTC limitation calculation, expanding the foreign-source income ceiling and, in many cases, converting previously excess FTCs into usable credits. That said, the allocation of these items entirely to U.S. source income could result in overall domestic losses (ODLs) that may also reduce FTC limitation as well.

Summary of Key Changes: GILTI vs. NCTI

The following table summarizes the primary mechanical changes from the GILTI regime to NCTI:

Provision	GILTI (Pre-2026)	NCTI (2026 Forward)
Name	Global Intangible Low-Taxed Income (GILTI)	Net CFC Tested Income (NCTI)
Statutory authority	I.R.C. § 951A (TCJA 2017)	I.R.C. § 951A (as amended, OBBBA 2025)
Effective date	Tax years after Dec. 31, 2017	Tax years after Dec. 31, 2025
QBAI/DTIR exclusion	10% of net QBAI excluded	Eliminated entirely — OBBBA § 101
§ 250 deduction rate	50% of GILTI inclusion	40% of NCTI — OBBBA § 100; I.R.C. § 250(a)(1)(B)
Effective rate (no FTCs)	10.5% (21% × 50%)	12.6% (21% × 60%)
FTC haircut	20% haircut — 80% creditable	10% haircut — 90% creditable — OBBBA § 102; I.R.C. § 960(d)(1)
Breakeven foreign rate	~13.125%	~14%
Interest expense allocation	Allocated to GILTI basket, reducing FTC limitation	Excluded; allocated to U.S.-source income — OBBBA § 103; I.R.C. § 904(b)(5)
R&E expense allocation	Allocated to GILTI basket, reducing FTC limitation	Excluded; allocated to U.S.-source income — OBBBA § 103; I.R.C. § 904(b)(5)
Expenses allocable to basket (FTC)	§ 250 deduction + interest + R&E + directly allocable	§ 250 deduction + directly allocable expenses only

Next Steps for U.S. Multinationals Under the New NCTI Rules

The transition from GILTI to NCTI is not a simple rebranding. The combined effect of eliminating QBAI, reducing the Section 250 deduction, narrowing the FTC haircut, and restructuring expense allocation requires every U.S. multinational to model its international effective tax rate and FTC position for 2026 and forward years under the new rules. Companies with capital-intensive foreign operations will face higher inclusion amounts than before. Companies in moderate- to high-tax jurisdictions should benefit from better FTC access. Companies carrying significant intercompany debt or investing heavily in R&D may find that previously stranded GILTI foreign tax credits are now fully usable.

For more information or to discuss how these changes apply to your specific structure, please reach out to the KBF International Tax Team: Scott Montopoli (smontopoli@kbfadvisory.com) or Mike Harper (mharper@kbfadvisory.com).