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• Limitation on Interest Expense Deduction â€� Under the TCJA the interest expense limitation was based on EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) until 31 December 2022 and moved to EBIT (Earnings Before Interest and Taxes) thereafter. Under the Bill it is proposed that the EBITDA limitation is restored for taxable years starting after 31 December 2024 until 1 January 2030 (i.e. the changes would be retroactive for 2025);
• Bonus Depreciation â€� The TCJA allowed qualified property to be fully expensed (i.e. 100 percent) until 31 December 2022. After that the expense would reduce by 20 percent each tax year (the 2025 rate was 40 percent). Under the proposals in the Bill full expensing for qualified property would be extended until 31 December 2029;
• Special Depreciation Allowance for Qualified Production Property â€� Under the TCJA non-residential real estate had to be depreciated over a 39 year period. The Bill proposes that full (100 percent) expensing is allowed for a new class of ‘qualifying production propertyâ€� where construction begins between 19 January 2025 and before 1 January 2029;
• Research and Expenditure (R&E) â€� The TCJA required R&E expenses to be capitalised and written down over five years. The Bill proposes that this treatment is suspended for domestic R&E for years starting after 31 December 2024 until 1 January 2030 (i.e. the measure would be retroactive for 2025); and
• Clean Hydrogen â€� The Inflation Reduction Act (IRA) allowed for a credit to be claimed based on the kilograms of qualified clean hydrogen produced for sale or use for facilities that began construction before 1 January 2033. The Bill proposes accelerating the expiration date to begin construction to 1 January 2026. In addition, the Bill made other modifications to the IRA energy tax credits prior to the Bill being passed by the full House. More information is available in an analysis prepared by ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in the US.

The key international provisions (excluding retaliatory measures which are dealt with in the following section) mainly focus on extending some of the TCJA provisions:

• Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) deductions â€� Under the TCJA deduction percentages for GILTI (50 percent) and FDII (37.5 percent) were set to reduce to 37.5 percent and 21.875 percent respectively for years starting after 31 December 2025. The Bill proposes that the higher (i.e. current) deduction percentages are permanently extended, albeit the rates have been tweaked slightly with the GILTI deduction percentage set at 49.2 percent and FDII deduction percentage set at 36.5 percent; and
• Base Erosion and Anti-Abuse Tax (BEAT) â€� The TCJA provided that the BEAT rate would increase to 12.5 percent and the use of credits against US tax (e.g. R&D credits) were no longer added back for tax years starting after 31 December 2025. The Bill proposes that a BEAT rate of 10.1 percent is made permanent and the current treatment of tax credits is permanently extended. However, these changes have to be considered alongside some of the retaliatory measures detailed below.

Much of the focus of UK corporates has been on the well-trailed retaliatory measures. The Bill introduces a new code section (Section 899) ‘Enforcement of Remedies Against Unfair Foreign Taxes� introducing these measures.

‘Unfair foreign taxes� are defined by the Bill as any Undertaxed Profits Rule (UTPR), Digital Services Tax (DST), or Diverted Profits Tax (DPT) as well as any “exterritorial, discriminatory or other tax as identified by the Secretary of Treasury that is disproportionately borne by US persons�. 

The UK currently has all three of the identified taxes in effect, but it is not alone. Many EU countries and other jurisdictions such as Australia, Canada and Japan have implemented at least some of them. This means that corporations resident in these countries (and subsidiaries of such corporations) which have US operations may be exposed to these retaliatory measures should they become law, unless the relevant country removes its ‘unfair foreign taxes�.

All UK groups with US operations, whether in the form of a subsidiary or a permanent establishment (PE) have the potential to be impacted by the proposals.

Proposed section 899 would impose the following retaliatory measures:

• Rates of withholding tax can be increased by 5 percent each up to a maximum of 20 percent above the statutory tax rate when an ‘unfair foreign taxâ€� is imposed. The tax rates will increase from the statutory tax rate or any tax rate that implies in lieu of such rates (e.g. treaty rates) where applicable. This is a change from earlier versions of the proposal where it had been inferred that the tax rate would default to the statutory rate and increase from there; and
• The second retaliatory measure involves modification to the BEAT rules which would apply to a US corporation owned, directly or indirectly, by entities resident in jurisdictions which impose an ‘unfair foreign taxâ€�:
  • BEAT would be applied as if the corporation satisfied the $500 million gross receipts test and base erosion percentage requirements, meaning that these thresholds are effectively removed, applying BEAT to many smaller multinational groups and other groups whose US operations were previously outside the application of the standard BEAT provisions;
  • The favourable treatment of certain tax credits (e.g. R&D) would be eliminated, and the base erosion minimum tax amount would be calculated using a higher percentage of 12.5 percent rather than 10 percent;
  • Treat as a Base Erosion Payment (BEP) and Base Erosion Tax Benefit (BETB) any amounts paid to foreign related parties that are capitalised, other than amounts for the purchase of depreciable property or amortisable property or inventory; and
  • Payments for certain related-party services currently excluded from BEAT under the Service Cost Method (SCM) would be considered base erosion payments.

These retaliatory measures would apply to taxable years that begin after the later of:

• 90 days following enactment of the proposal;
• 180 days following enactment of the unfair foreign tax; or
• The first date an unfair foreign tax of the relevant country begins to apply.

For the UK, this means these measures will come into effect 90 days after the enactment of the One Big Beautiful Bill Act, which the Republicans are aiming to have signed by 4 July 2025.

The measures have not yet been enacted and may be subject to further amendment as the Bill passes to the Senate. At this stage the focus will likely be on updating key stakeholders on the potential impact of the proposals. 

UK groups will need to assess their exposure to the proposed measures and consider whether there are options to mitigate potential tax liabilities. Whilst some of the impacts will be relatively straight forward to model, other changes such as the amendments to BEAT may be more challenging.

Interested readers can find out more by reading an analysis prepared by our US firm or by contacting one of the authors.

For further information please contact:

• Kashif Javed
• Alistair Pepper