Details of Public Law 119-21, section 70312 , One Big Beautiful Bill Act

This provision increases the percentage of foreign income taxes deemed paid for taxes properly attributable to net CFC tested income. Net CFC tested income is the United States (U.S.) shareholder’s excess (if any) of their aggregate pro rata share of CFC tested income for the taxable year, over the U.S. shareholder’s CFC tested loss for the taxable year (IRC section 951A(b)). The provision increases the percentage of foreign income taxes deemed-paid from 80 percent to 90 percent of the product of the domestic corporation’s Section 951A percentage inclusion by the aggregate tested foreign income taxes paid or accrued by the CFC.

This provision also removed the gross-up requirement in IRC section 78 for previously taxed earnings and profits deemed to be paid by a domestic corporation under IRC section 960(b) to be treated as a dividend to the domestic corporation from the foreign corporation, but retained those requirements for amounts equal to the taxes deemed to be paid by a domestic corporation under IRC sections 960(a) and (d).

Additionally, this provision disallows up to 10 percent of the FTC for foreign income taxes deemed paid or accrued with respect to any amount attributable to previously taxed earnings and profits excluded under IRC section 959(a) because of net CFC tested income included in gross income under IRC section 951A.

California does not allow a FTC and does not conform to subpart F (sections 951 to 965) of the IRC, relating to CFCs, except to the extent applicable with respect to filings under a water’s-edge election. As a result, California does not conform to the changes made by this provision.