International Competition for American Jobs Act

Bill Number

S. 1605

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-05-06: Read twice and referred to the Committee on Finance.

Last Updated

2025-06-06T13:22:37Z

AI-Generated Summary

Purpose

The "International Competition for American Jobs Act" (S. 1605) aims to amend the Internal Revenue Code of 1986 to adjust U.S. tax rules for multinational businesses. Its primary goal is to make the U.S. tax system more competitive internationally, encouraging American companies to invest in the U.S., repatriate profits, and create jobs by reducing certain tax burdens on foreign operations while closing potential loopholes.

Key Provisions

The bill includes multiple targeted amendments, most effective for taxable years beginning after December 31, 2025 (with some earlier applicability). Key elements include:

• Permanent Extension of Look-Thru Rule for Controlled Foreign Corporations (CFCs): Allows U.S. shareholders to treat certain income from CFCs (foreign subsidiaries owned more than 50% by U.S. persons) as if received directly from lower-tier entities, avoiding immediate taxation on passive income.

• Modifications to Deductions for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI):
• Increases the FDII deduction to 37.5% (from prior levels) and renames it "foreign-derived deduction eligible income" to broaden eligibility, including certain interest payments.
• Raises the GILTI deduction to 50% (from 37.5%), with rules for allocating related expenses.
• Limits deductions to those directly tied to the income and integrates them into net operating loss calculations.

• Changes to Base Erosion and Anti-Abuse Tax (BEAT):
• Calculates BEAT liability without regard to tax credits, but allows general business credits to offset it.
• Exempts certain payments from being treated as "base erosion payments" (e.g., those already taxed domestically, subject to at least 18.9% foreign tax, or service costs under transfer pricing rules).
• Eliminates temporary modifications post-2025 for a more permanent structure.

• Simplification of Foreign Tax Credit (FTC) Limitation Baskets:
• Reduces FTC "baskets" (categories for crediting foreign taxes against U.S. tax) from multiple to two: general and passive income.
• Allocates certain deductions specifically to GILTI for FTC purposes and updates carryover rules.

• Restoration of Stock Ownership Attribution Rules and New Rules for Foreign-Controlled Entities:
• Limits "downward attribution" (treating non-U.S. persons' ownership as U.S. ownership) to prevent artificial creation of CFCs.
• Introduces rules for "foreign-controlled U.S. shareholders" (U.S. entities over 50% owned by foreigners) to include certain income from foreign corporations in U.S. taxable income.

• Carryover of Net CFC Tested Losses: Permits losses from CFC operations to offset future GILTI inclusions, with adjustments for ownership changes under corporate merger rules.

• Redetermination of Foreign Taxes and FTC Claims:
• Expands circumstances for adjusting FTC claims (e.g., changes in tax treatment or elections between credit and deduction).
• Extends the statute of limitations for refunds related to foreign tax changes.

• Repeal of GILTI FTC Limitation: Removes the 80% cap on FTCs for GILTI, allowing full crediting of related foreign taxes.

• Extension of Dividend Deduction to CFC-Received Dividends: Treats certain foreign-source dividends received by CFCs as eligible for the 100% dividends-received deduction if from related foreign entities.

• Elimination of Certain Subpart F Income Categories: Removes "foreign base company sales income" and "foreign base company services income" from immediate U.S. taxation under Subpart F (rules taxing U.S. shareholders on CFC's undistributed income).

• Exemption from Subpart F for U.S. Investments: Excludes corporate U.S. shareholders from taxation on CFC investments in U.S. property.

• Broader Definition of Creditable Foreign Taxes: Treats foreign taxes as creditable if they primarily function as income taxes, regardless of jurisdictional ties.

• Special Rules for Intangible Property Transfers: For distributions of pre-enactment intangibles (e.g., patents, software) from CFCs to U.S. shareholders before 2029, treats fair market value as limited to basis to avoid gain recognition; adjusts stock and asset bases accordingly.

• Exclusion of Certain Virgin Islands Income from GILTI: Exempts income from services performed in the U.S. Virgin Islands by local corporations for certain U.S. shareholders (e.g., individuals or pre-2024 closely held firms), to support local economies.

Significant Changes to Existing Law

• From the 2017 Tax Cuts and Jobs Act (TCJA): Makes temporary provisions permanent (e.g., CFC look-thru rule) or more generous (e.g., higher GILTI/FDII deductions, full FTC for GILTI). Simplifies complex rules like FTC baskets and BEAT exemptions, reducing administrative burdens but expanding some anti-avoidance measures (e.g., foreign-controlled shareholder inclusions).
• Reversals and Expansions: Restores pre-TCJA limits on stock attribution to curb foreign takeovers creating tax shelters. Eliminates outdated Subpart F categories to focus taxation on passive or low-taxed income. Introduces new carryover losses and Virgin Islands exemptions not previously in law.
• Regulatory Flexibility: Empowers the Treasury Secretary to issue guidance for implementation, including anti-avoidance recharacterizations.

Potential Impacts

• On Government Agencies: The IRS may see increased complexity in audits and rulemaking for new definitions (e.g., effective foreign tax rates, Virgin Islands income). Reduced corporate tax revenue could strain federal budgets, potentially offset by higher economic activity.
• On Citizens: U.S. workers in multinational firms may benefit from job growth due to incentives for domestic investment. Individual taxpayers with foreign investments could face new inclusions if holding foreign-controlled entities, but small businesses are largely unaffected.
• On International Relations: Enhances U.S. competitiveness against low-tax jurisdictions (e.g., by strengthening BEAT and GILTI), potentially pressuring allies to align tax policies. May encourage profit repatriation, affecting global supply chains, but could strain relations with territories like the Virgin Islands if exemptions spur local development.

Main Stakeholders Affected

• U.S. Multinational Corporations: Primary beneficiaries through lower effective taxes on foreign earnings, encouraging U.S.-based operations and R&D.
• U.S. Shareholders of CFCs: Domestic parents and individuals/closely held firms gain from deductions, loss carryovers, and exemptions; foreign-controlled U.S. entities face new inclusions.
• Foreign Subsidiaries and Affiliates: Impacted by changes in U.S. taxation of their income/dividends, with exemptions for high-taxed or service-based operations.
• U.S. Virgin Islands Businesses: Positive effects from GILTI exclusion, supporting local service industries.
• IRS and Treasury Department: Responsible for enforcement, guidance, and revenue collection.
• Foreign Governments and Entities: Indirectly affected via U.S. anti-base erosion rules and FTC changes, potentially influencing bilateral tax treaties.

Notable Legal, Constitutional, or Political Implications

• Legal: Aligns with post-TCJA efforts to prevent profit shifting (e.g., via BEAT expansions) while easing burdens on legitimate operations. Introduces anti-avoidance regulations, which could lead to litigation over interpretations like "effective foreign tax rates" or recharacterizations. No direct challenges to FTC rules under international treaties, but may require updates to existing agreements.
• Constitutional: No apparent issues; amendments fall within Congress's taxing power under Article I. Equal protection concerns for Virgin Islands exemptions are minimal, as they target economic development in U.S. territories.
• Political: Positions as pro-jobs, pro-competitiveness reform, appealing to business interests but criticized for reducing revenue (estimated billions in forgone taxes). Could influence midterm elections by highlighting international tax policy, with bipartisan potential given TCJA extensions, though debates over corporate favoritism may arise.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Tillis, Thomas [R-NC]

Recent Actions

• 2025-05-06: Read twice and referred to the Committee on Finance.
• 2025-05-06: Introduced in Senate

Bill Versions

• International Competition for American Jobs Act — issued 2025-05-06 — PDF (32 pages)