Cross-border Tax Talks

OB3 Guidance: 4 big beautiful notices

Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Wade Sutton, a PwC principal who leads the International Tax Team in PwC’s Washington National Tax Services Practice and previously served as Deputy International Tax Counsel at the US Department of the Treasury. Doug and Wade discuss late-2025 Treasury and IRS guidance implementing cross-border provisions in the One Big Beautiful Bill Act (OBBBA), focusing on transition and compliance mechanics that surface on 2025 returns. They walk through Notice 2025-72 (CFC year-end conformity and short-period foreign tax allocation), Notice 2025-75 (final-year coordination of the 'hot potato' rule with Section 951A(2)(B) as the regime shifts to pro rata attribution), Notice 2025-77 (a 10% foreign tax credit haircut for taxes tied to certain previously taxed distributions), and Notice 2025-78 (limits on deduction-eligible export income for certain property and IP sales). They close with downstream interactions (especially CAMT and loss/FTC limitations) and how Pillar Two 'side-by-side' dynamics may influence structuring.

Timestamps and Descriptions 

• 00:00 – Opening, episode framing, and Pillar Two engine; Wade’s role at PwC and prior Treasury experience
• 01:10 – Wade’s reflections on guest-hosting CBTT (plus baseball banter)
• 02:50 – Agenda: four OBBBA-related notices and why non-US listeners should care
• 06:10 – Notice 2025-72: repeal/transition away from the one-month CFC year-end deferral election (Section 898)
• 10:00 – Conforming CFC years: the 'stub period' problem and foreign tax 'swamping' tested income
• 13:10 – Corner cases flagged: non-calendar foreign tax years (e.g., India), partnerships owned by CFCs, and liquidations during the stub period
• 16:15 – Notice 2025-75: transition rule for Section 951A(2)(B) in the final 'hot potato' year
• 17:10 – 'Hot potato' explained: who picks up Subpart F/tested items at year-end
• 19:10 – Policy shift: moving from year-end allocation to pro rata attribution through the year
• 21:05 – Coordination with participation exemption rules and the 'dividend not taxed' trigger
• 22:40– Practical M&A implications and the unanswered question: what the new pro rata mechanics will be
• 23:25 – Notice 2025-77: Section 960(d)(4) haircut on foreign tax credits tied to certain PTEP distributions
• 25:10 – Effective-date clarity: old vs. new PTEP and why timing can surprise taxpayers
• 27:25 – The broader PTEP guidance backlog and how OB3 changes may reset the project
• 28:25 – Notice 2025-78: limiting deduction-eligible foreign-derived income for certain property/IP sales
• 31:00 – 'Of a type' concern addressed: inventory isn’t tainted just because some assets are depreciated
• 32:45 – Digital copyrighted works: downloads treated as not-intangible for this purpose
• 33:35 – OB3 interactions with other rules: CAMT pressure points, deductions/FTC limitations, and ODL concerns
• 37:20 – Pillar Two side-by-side: robustness of US guardrails, 2029 stocktake lens, and profit-shift nuance
• 40:00 – Wrap and closing remarks

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