IRS Proposes Rules on Calculation of GILTI
The IRS has released guidance on the taxation of “global intangible low-taxed income” (GILTI) reported by US shareholders of corporations outside of the U.S. known as “controlled foreign corporations” (CFCs).
Calculating Taxable Income Under GILTI
In short, the TCJA created a current-year tax on income from a CFC that exceeds 10 percent of the net book value of its depreciable assets. These proposed regulations offer insights on how the U.S. owner of the CFC calculates the amount of taxable income to include in a specific year, as follows:
Items included in the GILTI calculation GILTI considers new terms such as “tested income,” “tested loss,” and “qualified business asset investment” (QBAI).These items are then aggregated to determine a GILTI inclusion amount. The proposed regulations provide additional guidance for the computation of these items.
- Modify “pro-rata share” calculations: The proposed regulations provide for modifications to reflect the differences between Subpart F income and other CFC items needed to calculate GILTI in determining a U.S. shareholder’s pro rata share.
- Partnerships that own CFCs: The rules apply the use of both an entity and aggregate approach for a domestic partnership that is a US shareholder of a CFC.
- Consolidated groups: A consolidated group may aggregate each member’s pro rata share of GILTI items so that the GILTI inclusion is calculated on a consolidated basis.
- Anti-abuse: Some anti-abuse rules have been defined in order to disallow certain transactions that may have been undertaken with the intent of reducing GILTI.
Talk to a Freed Maxick International Tax Expert
We’ll be updating you on new guidance as it’s released. In the meantime, if you have any questions or concerns about how the TCJA’s changes affect the tax treatment of income from your foreign subsidiaries, please contact Freed Maxick via our contact form, request a Tax Situation Review by clicking on the button, or call us at 716.847.2651 to discuss your situation.