U.S. Innovation and Global Competitiveness Act of 2026
- Sponsor
- Rep. Estes, Ron [R-KS-4]
- Committees
- Ways and Means Committee (primary)
- Last action
- Sep 16, 2026
Bottom line
The bill aims to reduce the tax burden on U.S. multinational corporations and simplify international tax rules, potentially boosting U.S. global competitiveness but also raising concerns about federal revenue and tax avoidance.
What it actually does
This bill proposes significant amendments to the Internal Revenue Code of 1986, primarily targeting the taxation of international entities. It seeks to enhance the competitiveness of U.S. multinational corporations by modifying provisions related to foreign-derived intangible income (FDII), global intangible low-taxed income (GILTI), the base erosion minimum tax (BEAT), and foreign tax credits (FTC). Key changes include increasing the FDII deduction, expanding BEAT exemptions, streamlining FTC limitations, and eliminating certain Subpart F inclusions.
Proponents argue
Supporters argue that these reforms are crucial for making the U.S. a more attractive place for businesses to innovate, invest, and create jobs. They contend that the current international tax system places U.S. companies at a disadvantage compared to foreign competitors, leading to capital flight and reduced economic activity. By simplifying rules and reducing effective tax rates on foreign-derived income, the bill would encourage companies to keep intellectual property and profits in the U.S., fostering innovation and economic growth.
Opponents contend
Critics might argue that the bill primarily benefits large multinational corporations at the expense of federal revenue, potentially exacerbating the national debt or requiring cuts to other programs. They may contend that some provisions could create new loopholes for profit shifting and base erosion, undermining the intent of prior tax reforms. Concerns could also be raised about the fairness of reducing the tax burden on highly profitable international entities while potentially increasing it for domestic businesses or individual taxpayers.
The bill is highly technical, amending complex sections of the Internal Revenue Code. An informed reader would require significant time to understand its full implications, especially given the interconnected nature of international tax provisions.
Sec. 2
Modification of Deduction for Foreign-Derived Intangible Income (FDII) and Net Controlled Foreign Corporation (CFC) Tested Income
This section increases the deduction for foreign-derived intangible income (FDII) from 33.34 percent to 40 percent. It also clarifies that this deduction does not apply against the dividends received deduction limitation and is considered when determining the net operating loss deduction. Additionally, it introduces a 'look-through' rule for interest payments, allowing certain interest paid by a controlled foreign corporation to a related U.S. shareholder to be included in foreign-derived deduction eligible income.
Supporters argue
Proponents argue that increasing the FDII deduction further incentivizes U.S. companies to retain and develop intellectual property in the United States, thereby boosting domestic innovation and job creation. The look-through rule for interest payments aims to simplify compliance and prevent unintended tax consequences for intercompany financing arrangements.
Critics contend
Opponents might contend that this provision disproportionately benefits large corporations with significant intangible assets, potentially at the expense of smaller businesses. They may also argue that it could lead to further erosion of the U.S. tax base by making it more attractive to attribute income to intangible assets.
Tradeoffs
The provision balances the goal of incentivizing domestic innovation and competitiveness with concerns about potential revenue loss and the fairness of tax benefits distribution among different types of businesses.
Sec. 3
Modifications to Base Erosion Minimum Tax (BEAT)
This section makes several changes to the Base Erosion Minimum Tax (BEAT). It specifies that the BEAT amount is determined without regard to credits, and allows the general business credit to be applied against the BEAT. Crucially, it expands exemptions for certain payments, including those already subject to sufficient U.S. tax (e.g., Subpart F or GILTI inclusions) or those made to foreign persons subject to an effective foreign income tax rate of at least 18.9 percent. It also introduces an exception for payments to related parties in jurisdictions with 'discriminatory taxes' and for certain services payments.
Sec. 4
Modification of Foreign Tax Credit (FTC) Limitation Baskets
This section simplifies the foreign tax credit limitation by striking the separate baskets for 'foreign branch income' and 'global intangible low-taxed income' (GILTI), effectively consolidating them into fewer, broader categories. It also removes the carryback provision for foreign tax credits and modifies the rules for allocating certain deductions, specifically the FDII deduction and related state taxes, to foreign source net CFC tested income for FTC limitation purposes. Other deductions are only allocated if directly allocable to such income, otherwise to U.S. source income.
Sec. 5
Carryover of Net CFC Tested Loss
This section introduces a new rule allowing for the carryover of 'net CFC tested loss.' If a U.S. shareholder's aggregate tested losses from controlled foreign corporations exceed their aggregate tested income for a taxable year, that excess (the net CFC tested loss) can be carried over to increase the aggregate tested losses in the succeeding five taxable years. This provision also includes rules for applying this carryover in the context of ownership changes under Section 382.
Sec. 6
Redetermination of Foreign Taxes and Related Claims
This section modifies the rules for redetermining foreign taxes and related claims. It expands the circumstances requiring a redetermination to include timely changes in the choice to claim a credit or deduction for taxes, or any other change affecting the taxpayer's U.S. tax liability. It also introduces an irrevocable election for taxpayers to treat redetermined taxes as paid or accrued in the year of redetermination, rather than requiring an amended return for the original year. The special period of limitation for foreign tax credit adjustments is also modified to reflect these changes.
Sec. 7
Repeal of Foreign Tax Credit Haircut for Net Controlled Foreign Corporation Tested Income
This section repeals the '90 percent of' limitation (often referred to as the 'haircut') on the foreign tax credit for global intangible low-taxed income (GILTI). Previously, taxpayers could only claim a foreign tax credit for 80 percent of the foreign income taxes properly attributable to GILTI, which was then subject to a 90 percent limitation. With this change, the 90 percent limitation is removed, allowing for a more complete utilization of the 80 percent deemed paid credit.
Sec. 8
Repeal of Inclusion Percentage Applicable to Deemed Paid Credit for Taxes Properly Attributable to Tested Income
This section repeals the 'inclusion percentage' rule for deemed paid foreign tax credits related to global intangible low-taxed income (GILTI). Previously, the amount of foreign income taxes deemed paid by a domestic corporation was limited by an 'inclusion percentage.' With this amendment, domestic corporations are deemed to have paid foreign income taxes equal to the aggregate tested foreign income taxes paid or accrued by their controlled foreign corporations, without this additional limitation.
Sec. 9
Application of Foreign-Source Dividend Deduction to Amounts Received by Controlled Foreign Corporations
This section extends the foreign-source dividend deduction (Section 245A) to certain dividends received by controlled foreign corporations (CFCs) from specified 10-percent owned foreign corporations. Specifically, if a CFC receives a non-hybrid dividend from another foreign corporation where the U.S. shareholder also has a 10-percent ownership, the foreign-source portion of that dividend, when included in the U.S. shareholder's gross income under Subpart F, will be treated as if it were a direct dividend received by the U.S. shareholder for purposes of the Section 245A deduction. This aims to prevent multiple layers of U.S. taxation on foreign earnings.
Sec. 10
Elimination of Inclusion of Foreign Base Company Sales Income and Foreign Base Company Services Income
This section significantly narrows the definition of 'foreign base company income' under Subpart F. It repeals the inclusion of 'foreign base company sales income' and 'foreign base company services income' from this definition. As a result, only 'foreign personal holding company income' will constitute foreign base company income for purposes of Subpart F, subject to certain reductions. This change aims to reduce the instances where passive or highly mobile income is immediately taxed to U.S. shareholders.
Sec. 11
Corporations Exempt from Subpart F Inclusion for Investment in United States Property
This section amends Section 956(a) of the Internal Revenue Code, which generally requires a U.S. shareholder to include in gross income their pro rata share of a controlled foreign corporation's (CFC) earnings invested in U.S. property. The amendment inserts "(other than a corporation)" after "United States shareholder," effectively exempting corporate U.S. shareholders from this Subpart F inclusion. This means only individual, trust, or estate U.S. shareholders would be subject to the Section 956 inclusion.
Sec. 12
Special Rules for Transfers of Intangible Property from Controlled Foreign Corporations to United States Shareholders
This section introduces new rules allowing for the tax-free repatriation of certain intangible property held by controlled foreign corporations (CFCs) to their U.S. shareholders. Specifically, for distributions of intangible property (as defined in Section 367(d)(4) or computer software) held by a CFC on the date of enactment, the fair market value of such property will be treated as not exceeding its adjusted basis immediately before distribution. If the distribution is not a dividend, the U.S. shareholder's stock basis increases, and the property's basis in their hands is adjusted. This applies to distributions made before the last day of the third taxable year of the CFC beginning after December 31, 2025.
Sec. 13
Net CFC Tested Income Determined Without Regard to Certain Income Derived from Services Performed in the United States Virgin Islands
This section creates an exclusion from 'net CFC tested income' (which is used to calculate GILTI) for 'qualified United States Virgin Islands services income.' This income is defined as compensation for labor or personal services performed in the U.S. Virgin Islands by a U.S. Virgin Islands-formed corporation, attributable to services performed by individuals in the USVI for the corporation's benefit, and effectively connected with a USVI trade or business. This exclusion applies only to 'specified United States shareholders,' which include individuals, trusts, estates, or closely held C corporations that acquired their equity interest before December 31, 2023.
Sec. 14
Repeal of Modification to Definition of Adjusted Taxable Income (ATI) for Purposes of the Limitation on Business Interest
This section repeals a prior modification to the definition of 'adjusted taxable income' (ATI) used for purposes of the Section 163(j) limitation on business interest deductions. Previously, for taxable years beginning after December 31, 2021, depreciation, amortization, and depletion were no longer added back to taxable income when calculating ATI. This repeal means that for taxable years beginning after December 31, 2026, depreciation, amortization, and depletion will once again be added back to taxable income for ATI calculation, effectively increasing ATI and allowing businesses to deduct more interest expense.
Sec. 15
Research Credit Treated as a Specified Credit for All Taxpayers for Purposes of General Business Credit
This section amends Section 38(c) of the Internal Revenue Code, which limits the amount of general business credit (GBC) that can be claimed in a taxable year. It removes the restriction that only the research credit for 'eligible small businesses' is treated as a 'specified credit' for GBC limitation purposes. This change means that the research credit, regardless of the taxpayer's size, will be subject to a more favorable GBC limitation rule, allowing more of the credit to be utilized against tax liability.
Sec. 16
Regulations to Prevent Duplicative Charges to Capital Account for Certain Research and Development Expenditures
This section directs the Secretary of the Treasury to prescribe regulations or other guidance to prevent the same economic expense for research and development (R&D) expenditures from being charged to a capital account by more than one member of a controlled group of corporations. This aims to avoid situations where R&D expenses are capitalized multiple times within a related corporate structure, ensuring consistent and fair tax treatment. The regulations are explicitly prohibited from changing the treatment of such expenses for other purposes of the tax code.
Introduces a 'look-through' rule for interest payments, allowing interest paid by a controlled foreign corporation (CFC) to a related U.S. shareholder to be included in foreign-derived deduction eligible income (FDDEI) if it meets certain criteria (described in section 951A(c)(2)(A)(ii)). The Secretary may issue regulations to prevent this from applying if the interest is directly related to the shareholder's (or related person's) interest expense.
Sec. 2(d)
Why it matters:This is standard legislative practice for highly technical tax code amendments, which often rely on cross-references to existing definitions and rules.
Case for: Supporters argue this clarifies the treatment of intercompany interest payments, preventing unintended negative tax consequences for U.S. multinationals and promoting more efficient capital allocation within global corporate structures.
Case against: Critics might argue that such specific 'look-through' rules can be complex to administer and could potentially be exploited for tax planning purposes, even with regulatory safeguards.
Estimated impact: Likely to reduce U.S. tax liability for certain multinational corporations with specific intercompany financing arrangements, with an undetermined revenue impact.
Establishes an exception to the BEAT exemption for payments made to related parties in jurisdictions that impose a 'discriminatory tax' on domestic corporations. It provides a detailed definition of 'discriminatory tax,' including digital services taxes and other taxes that disproportionately target non-residents or are not considered income taxes under double taxation agreements. It also lists several exceptions to what constitutes a discriminatory tax.
Sec. 3(c)(1) (new Section 59A(i)(3))
Why it matters:The complexity is inherent in defining what constitutes a 'discriminatory tax' in the context of international tax policy, requiring precise legal language to avoid unintended consequences. This is standard for complex tax definitions.
Case for: Proponents argue this provision is a crucial tool to counter unfair or protectionist tax policies enacted by foreign governments, particularly those targeting digital services or U.S. companies. It aims to level the playing field for U.S. businesses operating internationally.
Case against: Critics might argue that this provision could be seen as unilateral U.S. tax policy dictating foreign tax regimes, potentially leading to international trade disputes or retaliatory measures. The definition itself could be contentious and difficult to apply in practice.
Estimated impact: Could significantly impact the BEAT liability of U.S. multinationals making payments to related parties in jurisdictions with taxes deemed 'discriminatory,' potentially altering global tax strategies.
Adds a new paragraph (7) to Section 904(b) regarding the allocation of deductions for foreign tax credit (FTC) limitation purposes. For amounts includible in gross income under Section 951A (GILTI, other than passive category income), the Section 250(a)(2) deduction (related to GILTI) and associated state taxes are specifically allocated to such income. Other deductions are only allocated to such income if the Secretary determines they are 'directly allocable' to it; otherwise, they are allocated to U.S. source income.
Sec. 4(b)
Why it matters:This is typical for detailed tax accounting rules that require precise language to ensure proper application within a complex statutory scheme.
Case for: Proponents argue this ensures a more accurate matching of deductions to the income they generate, preventing deductions related to U.S. activities from reducing the foreign source income basket, which could artificially limit FTCs. Allocating other deductions to U.S. source income helps protect the U.S. tax base.
Case against: Critics might argue that the 'directly allocable' standard could be too restrictive, potentially shifting more deductions to U.S. source income than is economically appropriate, thereby increasing U.S. taxable income and reducing FTC utilization for some companies.
Estimated impact: Could significantly impact the effective foreign tax credit rate for U.S. multinationals, potentially increasing their U.S. tax liability by reducing the foreign source income limitation.
A 'No Inference' clause stating that nothing in the amendments made by subsection (a) (regarding the application of foreign-source dividend deduction to CFCs) shall be construed to create any inference with respect to the treatment of such dividends in taxable years beginning before the effective date of the amendments.
Sec. 9(c)
Why it matters:This is a common legislative drafting technique to prevent courts or the IRS from interpreting the new law as an implicit statement about how prior law should have been interpreted, thereby avoiding retroactive application or challenges to past tax positions.
Case for: Proponents argue it provides legal certainty, ensuring that the new rules do not inadvertently create new tax liabilities or challenges for past transactions that were compliant under the then-existing law.
Case against: No direct case against, as it's a standard legal safeguard, though some might argue it highlights the potential ambiguity of prior law.
Estimated impact: Prevents retroactive tax disputes or changes in tax treatment for past periods, providing stability for taxpayers.