Expert Insight: Three Things to Know About GILTI

Bloomberg Tax & Accounting’s Alex Bayrak examines the fundamentals of the global intangible low-taxed income tax, including how to calculate GILTI tax on foreign earnings and how GILTI interacts with various provisions of the tax code.


Transcript:

“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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