Global Intangible Low-Taxed Income (GILTI)

What income of a controlled foreign corporation (CFC) is currently taxed to a 10% U.S. shareholder?

A CFC’s “subpart F income” is the major component of a CFC’s income that is taxed to any U.S. shareholder who directly or indirectly owns at least 10% of the CFC. Subpart F income consists of the following:

• Foreign personal holding company income, including income generally considered to be passive – such as interest, dividends, rent, royalties, capital gains, exchange gains, and so on – with some exceptions when these items are earned in active businesses.
• Sales and services income from transactions with or on behalf of related persons when either the purchase or sale, or the services, take place outside the country of incorporation, subject to exceptions in each case.
• Insurance income from policies outside a CFC’s country of incorporation.
• Items imposed as a penalty, including the amount of bribes, kickbacks, etc.; a portion of income not otherwise treated as subpart F income if a CFC has business considered to be affected by an international boycott; and income from unrecognized countries, countries with which diplomatic relations are severed, and countries that support terrorism.

Additional taxable income

In addition, a CFC’s 10% U.S. shareholders are taxed on amounts considered to be “invested in United States property,” up to the amount of the CFC’s earnings and profits that have not been taxed by subpart F – even though they are not actually subpart F income, such as:

• Property owned in the United States.
• Stock or securities owned by U.S. persons (with some exceptions).
• U.S. rights to certain intangible properties such as patents, copyrights, and business intangibles.

Also, 10% U.S. shareholders must also pay tax on the aggregate of the CFC’s GILTI deemed amount, which is also is not subpart F income.

Download: International Tax Discussion OnPoint

This concise OnPoint presentation highlights all you need to know about the international tax provisions of the Tax Cuts and Jobs Act (TCJA) to help you prepare for new revisions, including changes to the GILTI regime, the FDII calculation, and subpart F foreign tax credits.

Can a U.S. company still ‘invert’ after the 2017 Tax Cuts and Jobs Act?

The TCJA (Pub. L. No. 115-97) did not change the taxation of a corporate inversion, but many international provisions of the law were designed to make it less attractive from an income tax perspective to do so. The lowering of the corporate income tax rate, the creation of a favored category of income in the “foreign-derived intangible income” (FDII) deduction, and the GILTI inclusion – an anti-deferral device but at a favorable tax rate – all reduce the comparative tax attractiveness of an inversion.

At the same time, an inversion will still carry the same tax consequences as before the TCJA. An inversion puts a foreign parent corporation between a U.S. company and its shareholders. The tax consequences of such a transaction depend upon the level of control of the interposed foreign corporation, which is termed the “surrogate foreign corporation.” If the level of control is 80% or more, the foreign corporation is treated as a domestic corporation for all purposes of the code. If the level of control is less than 80%, but at least 60%, the effect is to impose a minimum amount of taxable income for the entity and its related parties, termed the “inversion gain,” for a 10-year period after the inversion is completed.