The One Big Beautiful Bill Act (the “OBBBA”) was signed into law on Friday, and, while not the paradigm shift of 2017’s Tax Cuts and Jobs Act (the “TCJA”), it introduces important changes affecting both domestic and cross-border transactions, many of which are effective for tax years beginning after December 31, 2025.  The overall impact of the OBBBA in specific situations, especially for U.S. multinationals, will require careful analysis.  However, in many respects, the new law preserves or enhances the status quo, avoiding the disruption of otherwise sunsetting TCJA provisions and, in the domestic context, favoring acquirors of depreciable tangible assets and certain leveraged transactions.

Notably, the OBBBA omits the so-called “revenge tax” included in earlier versions of the bill that raised particular concern among debt issuers and lenders and threatened to decrease foreign investment into the United States.  The “revenge tax” would have increased federal income tax rates on certain income of residents of, and multinationals parented in, countries imposing extraterritorial or deemed discriminatory taxes (such as digital services taxes).  The provision was dropped as a result of negotiations with the G7, which agreed in principle to seek to exempt U.S.-parented groups from certain aspects of the OECD’s global minimum tax framework.  The longer-term impact of the G7 resolution, including whether and to what extent the OECD and member countries ultimately adopt exemptions for U.S. companies, remains to be seen.

On the domestic front, the OBBBA makes permanent several taxpayer-favorable TCJA provisions.  Taxpayers will again be entitled to deduct immediately 100% of the cost of depreciable tangible assets, likely increasing the appeal of acquiring assets as compared to stock.  The deduction for up to 20% of the business income of certain noncorporate investors in certain pass-through entities is made permanent, preserving the tax efficiency of partnership, rather than corporate, joint venture structures for those investors.  The OBBBA permanently restores the pre-2022 TCJA limitation on interest expense deductions by applying the 30% limit to an amount that approximates EBITDA, rather than EBIT.  But it imposes new limits by excluding from the EBITDA calculation certain foreign-source items of income.  The net impact of these changes on particular leveraged transactions will need to be assessed.

For U.S. multinationals, the OBBBA is a mixed blessing.  It widens the scope of income of U.S.-parented “controlled foreign corporations” (“CFCs”) that is subject to current federal income taxation, but generally improves the U.S. parent company’s ability to credit foreign income taxes.  Specifically, GILTI (the TCJA’s tax on CFC earnings in excess of a deemed 10% return on tangible assets) is replaced with a more costly tax on “net CFC tested income,” a concept that does not reflect a deduction for the return on tangible assets.  However, the OBBBA liberalizes the foreign tax credit regime by increasing the amount of foreign taxes that may be credited against net CFC tested income and by no longer requiring interest expense and research and experimental expenditures to be allocated against such income.  The OBBBA also revises the treatment of mid-year sales of CFCs, requiring a pro rata income allocation based on the period of stock ownership.

M&A participants in both the domestic and cross-border contexts should be mindful of the new law, and its provisions should be factored into the negotiation of deal pricing, structure and other terms.