“Hi, I’m Alex Bayrak from Bloomberg Tax & Accounting here to discuss three things to know about the global intangible low-taxed income tax, known as GILTI.
1. What is GILTI?
Introduced by the 2017 Tax Cuts and Jobs Act, GILTI is a deemed amount of income derived from controlled foreign corporations (“CFCs”) in which a U.S. person is a 10% direct or indirect shareholder. As a newly defined category of foreign income, the GILTI regime effectively imposes a worldwide minimum tax on foreign earnings.
2. How is GILTI computed?
GILTI = Net CFC Tested Income – (10% x Qualified Business Asset Investment, or QBAI – Interest Expense). Let’s break this equation down. Here, tested income is defined as:
- Gross income minus
- Subpart F income
- U.S. effectively connected income
- Income that qualifies for the high tax exception
- Related party dividends
- Certain deductions
- And foreign oil and gas extraction
And QBAI is defined as:
- The average of the adjusted bases in specified tangible property subject to depreciation used in a trade or business and for which a deduction is allowable under 167.
3. What is the importance of GILTI?
Alongside creating a tax on foreign earnings, GILTI interacts with numerous provisions of the tax code affecting the calculation of:
- Foreign tax credits
- The Section 250 deduction
- Foreign-derived intangible income (FDII)
- And the 2020 proposed Subpart F high-tax exception rules
As a result, navigating through the laws and regulations around GILTI is vital to any comprehensive tax planning strategy.”
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