HB995, the No Tax Breaks for Outsourcing Act, amends the Internal Revenue Code to replace global intangible low-taxed income (GILTI) with a new concept called net CFC tested income and to adjust related provisions. The bill also adds a country-by-country element to how foreign tax credits are calculated, tightens the deduction for interest paid by domestic corporations in international financial reporting groups, and overhauls inversion rules and the treatment of foreign corporations managed and controlled in the United States.
These changes touch a broad swath of cross-border taxation and corporate financing rules.
The changes are designed to close perceived loopholes and strengthen the U.S. tax base by aligning tax outcomes more closely with where economic activity occurs, while imposing greater regulatory clarity and reporting requirements. The bill would also modify thresholds and definitions to reflect new concepts like CFC taxable units and tested income, and it would authorize new Treasury and IRS guidance to implement these rules.
The proposal is narrowly focused on tax code mechanics and coordination with existing anti-avoidance provisions, not political outcomes or predictions about passage.
At a Glance
What It Does
Renames 951A’s GILTI framework to net CFC tested income, repeals related exclusions, and expands alignment with country-by-country allocation and other anti-avoidance rules.
Who It Affects
US shareholders of controlled foreign corporations, domestic corporations in international groups, foreign branches, and multinational entities with US operations.
Why It Matters
Sets the stage for a more granular, country-based taxation of cross-border income and tighter cross-border financing rules, which could shift multinational planning and revenue for the US Treasury.
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What This Bill Actually Does
The bill redefines how the United States taxes certain foreign income. It changes the current GILTI framework by replacing “global intangible low-taxed income” with “net CFC tested income” and makes a series of conforming changes to the broader set of code provisions that interact with GILTI, including references to section 951A and related sections.
It also introduces a country-by-country approach to applying the tax rules, meaning that tested income and credits would be determined separately for each country where a taxpayer has controlled foreign corporations (CFCs) or related entities. The bill sets out new definitions and procedures for allocating income to CFC taxable units and for determining the appropriate credits and limits across jurisdictions.
In addition, the Act tightens the treatment of foreign and domestic entities within international financial reporting groups, introducing an objective cap on interest deductions for certain domestic corporations and providing for the carryforward of disallowed interest. It broadens the set of rules governing inversions, and it creates a path to treat certain foreign corporations managed and controlled in the United States as domestic entities for U.S. tax purposes.
The overall effect is to tighten cross-border tax rules, reduce incentives for tax-driven outsourcing arrangements, and increase regulatory oversight of multinational corporate structures. The effective dates indicate when various provisions apply, and the bill contemplates regulatory guidance to operationalize the new constructs.
The Five Things You Need to Know
The bill replaces GILTI with net CFC tested income and makes conforming amendments to related provisions.
It introduces country-by-country calculations for net CFC tested income and for foreign tax credits.
A new limit on domestic interest deductions for groups in international financial reporting structures is established.
Inversion rules are tightened and foreign corporations managed in the U.S. may be treated as domestic for tax purposes.
Regulatory authorities are empowered to issue guidance on property transfers, basis adjustments, and asset allocations to reflect tested income.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Short title and table of contents
Section 1 codifies the act’s short title as the No Tax Breaks for Outsourcing Act and provides the table of contents for the amendments that follow. It also indicates that amendments are to be understood as changes to the Internal Revenue Code of 1986, setting up the framework for the rest of the bill.
Current year inclusion of net CFC tested income
Section 2 repeals the tax-free deemed return on investments and redefines 951A’s GILTI to net CFC tested income. It makes substantial conforming amendments to sections 951A and 960, and it adds a regulatory directive to reflect the new treatment. The net effect is a fundamental recharacterization of how certain foreign earnings are included in U.S. taxable income and how related credits and deductions interact.
Country-by-country application of limitation on foreign tax credit based on taxable units
Section 3 adds a country-by-country layer to how the foreign tax credit is allocated and calculated. It defines CFC taxable units and requires that testing and credit limitations be computed separately for each country, with rules mirroring other international tax concepts (such as 904(e)) for allocation of income, deductions, and credits. The aim is to constrain cross-border tax planning by requiring country-specific treatment and by clarifying the definitions of taxable units and related terms.
Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group
Section 4 introduces a new limitation on the deduction of interest for domestic corporations that are part of an international financial reporting group (IFRG). It sets a cap based on a calculation involving the group’s EBITDA and the corporation’s allocable share of net interest expense, along with treated interest income. It also provides carryforward mechanics for disallowed interest, and expands the treatment of interest for consolidated and cross-border groups, including regulations for partnerships and foreign entities within IFRGs.
Modifications to rules relating to inverted corporations
Section 5 broadens the inverted corporation rules under 7874. It adds tests for when a foreign corporation should be treated as a domestic entity, including tests based on stock ownership, management, and the location of executive decision-making. It also tightens the thresholds to determine substantial domestic activity and provides a framework for determining where management and control actually reside, with specific provisions on senior management and asset location. The section makes adjustments to regulatory timing and alignment with existing inverted-entity rules.
Treatment of foreign corporations managed and controlled in the United States as domestic corporations
Section 6 adds a new subsection to 7701 to treat certain foreign corporations as domestic if managed and controlled in the United States. It defines criteria for when management and control are located in the U.S., including rules around executive officers, asset management, and foreign entities that hold US operations. It also provides for regulatory guidance on determining where management occurs and sets forth thresholds and safeguards, including potential waivers for certain entities. The section includes a delayed effective date to allow transition.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- U.S. Treasury and the IRS gain clearer revenue-raising tools through country-by-country allocations and expanded enforcement authority.
- Policy researchers and tax professionals gain a clearer framework for analyzing cross-border income and credits under a country-by-country approach.
- Large multinational corporations with substantial U.S. operations may benefit from clearer rules and reduced ambiguity in how income is allocated and taxed across jurisdictions (where operations align with the country-by-country framework).
- Consulting and accounting firms that implement cross-border tax planning and compliance stand to benefit from the demand for guidance on the new rules.
Who Bears the Cost
- Multinational corporations with complex cross-border structures face higher compliance costs and potential tax liabilities as the new per-country testing and allocations reduce flexibility.
- Domestic corporations that are part of international financial reporting groups will face stricter limits on interest deductions, increasing after-tax costs and impacting financing decisions.
- Foreign corporations treated as domestic for U.S. tax purposes may experience increased administrative burden and potential tax exposure due to new capability requirements and regulatory oversight.
- Small and mid-sized businesses with cross-border activities could incur higher compliance costs relative to prior rules, as the new framework demands more granular reporting and tracking.
Key Issues
The Core Tension
The central dilemma is balancing tighter protection of the U.S. tax base and revenue integrity with the need to maintain international competitiveness and reasonable compliance costs. More aggressive country-by-country testing and interest limitations improve revenue security but raise complexity and potential distortions in corporate structuring and investment decisions.
The bill introduces a number of tensions and trade-offs. On one hand, it tightens the tax base by imposing country-specific testing and limiting tax-advantaged cross-border arrangements.
On the other hand, the added complexity raises compliance burdens for taxpayers and their advisers, potentially increasing the cost of doing international business in the United States. The coordination between new rules (net CFC tested income) and existing provisions (foreign tax credits, deductions, and anti-avoidance measures) may create timing mismatches or double-counting unless carefully harmonized through regulations.
The reliance on EBITDA as a measurement for IFRG interest limitations invites questions about treatment for non-standard corporate structures and non- GAAP reporting, which the secretary may need to address in regulations. The effective dates suggest a phased approach, but transitional rules will be required to avoid abrupt tax shocks for taxpayers with investments spanning the 2024–2025 period and to align carryforwards of disallowed interest with new limits.
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