On September 16, Representative Ron Estes (R-KS) introduced the U.S. Innovation and Global Competitiveness Act of 2026, intended to lay out his "vision and House Republican views on the future of international tax policy." Estes' legislation picks up on international reform proposals developed previously by former Senator Rob Portman (R-OH) and Senator Thom Tillis (R-NC). A Fact Sheet describes the bill as "a marker and menu of options that are ready to be included in future tax packages." With the future in mind, this week's Tax Take takes a peek at what's on the menu. In general, these provisions are proposed to be effective for tax years beginning after December 31, 2026, although some provisions have different effective dates.

Base Erosion Anti-Abuse Tax (BEAT)

• Exclude amounts from the definition of base erosion payment if the amount (or any portion thereof) is includible in gross income by reason of section 951(a) (subpart F), 951A (net controlled foreign corporation (CFC) tested income (NCTI)), or section 871(b) or 882(a) (effectively connected income (ECI)).
• Create a BEAT "high tax exception" for amounts paid to a foreign person that is subject to an effective rate of foreign income tax (as defined in section 954(b)(4)) of at least 18.9 percent. The effective rate may be established on the basis of applicable financial statements. 
• The bill also includes a "section 899-type" exclusion for countries with "discriminatory" taxes, under which the BEAT high tax exception would not apply to amounts paid to a related person if that person is a tax resident of a jurisdiction with a discriminatory tax or if any 25-percent owner of the related party is tax resident of a jurisdiction with a discriminatory tax.
• A discriminatory tax specifically includes a digital services tax, and other certain taxes defined as discriminatory to the extent provided by Treasury regulations.    
• Modify the base erosion minimum tax amount so that it is determined by reference to regular tax liability, without regard to tax credits (including the foreign tax credit (FTC)) taken against regular tax liability.
• Amend section 38(c) to allow general business credits against BEAT liability.
• Clarifies the services cost method exception (consistent with current Treasury regulations).

Expansion of Foreign-Derived Deduction-Eligible Income (FDDEI)

• Increase the section 250 deduction for FDDEI from 33.34 percent to 40 percent, resulting in a 12.6 percent tax rate, the same as the rate for NCTI.
• Include interest from CFCs in FDDEI on a look-through basis.
• Amend section 245(b)(1) so that the section 250 deduction does not apply against the dividends-received deduction, reversing the legal position taken by the Internal Revenue Service (IRS) in GLAM 2024-002.
• Allow the section 250 deduction to be taken into account in determining the net operating loss (NOL) deduction.

CFC Income and Foreign Tax Credits

• Eliminate separate section 904 categories for section 951A (NCTI) and foreign branch income, repeal the 10 percent haircut for foreign income taxes on NCTI, and repeal the "inclusion percentage" for foreign income taxes on NCTI.
• Permit a carryover of net CFC tested losses.
• Permit a section 245A dividends-received deduction for lower-tier dividends received by a CFC from a specified-foreign corporation, reversing the legal position taken by the IRS in CCA 202436010.
• Repeal the subpart F foreign base company sales and services income rules.
• Exclude corporate U.S. shareholders from the section 956 inclusion for investment in U.S. property (expanding the exception provided under current Treasury regulations).
• Further limit deductions allocable to NCTI inclusions for FTC purposes to the section 250 deduction, state taxes, and other expenses determined to be directly allocable by regulation; this provision may have a more limited effect if recently proposed regulations implementing section 904(b)(5) are finalized.
• Repeal the One Big Beautiful Bill Act (OBBBA) amendments that excluded section 951 (NCTI) inclusions from the section 163(j) adjusted taxable income limitation, consistent with the substance of the Ensuring Better Interest Treatment and Deductibility Act introduced by Representative Estes and Senator Shelley Moore Capito (R-WV) earlier this year.
• In the case of foreign tax redeterminations under section 905(c), permit an election to treat foreign income taxes as paid or accrued in the year of the foreign tax redetermination.

Repatriation of Intangible Property

• Provide temporary rules to facilitate repatriation of intangible property by CFCs to corporate U.S. shareholders without undue U.S. tax cost.

As noted in the press release accompanying the introduction of the bill, "Rep. Estes intends the bill as a starting point for the next round of international tax changes and a list of options for future tax legislation. He plans to gather additional feedback on the proposals through the rest of the year and into the 120th Congress." It is important for taxpayers to carefully review and comment on these proposals in advance of anticipated future legislative consideration. #TaxTake

Upcoming Speaking Engagements

Rocco will speak at the Practising Law Institute International Tax Issues Update 2026 conference on October 7.

Miller & Chevalier is sponsoring the 61st Annual Southern Federal Tax Institute on October 19-23.

Looking ahead, Layla is co-chairing the 2026 Georgetown-IRS Institute on Current Issues in International Taxation on December 15-16. Mike and Tax Member Jeff Tebbs will speak at the conference.

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