GILTI Blog

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).Read Freed Maxick’s   other blog posts on GILTI,   including our GILTI Calculator

The Tax Cuts and Jobs Act of 2017 (TCJA) included provisions intended to generate tax advantages for income generated by intangible assets held in the U.S. (“foreign-derived intangible income” or “FDII) as opposed to income generated by intangible assets owned offshore by a CFC (GILTI). The recent guidance focuses on the calculation and distribution of the GILTI generated by assets held offshore in CFCs. If you’ve managed to swim through the alphabet soup to get this far, we’ll try to clear things up for you from here.

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

Tax Situation ReviewWe’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.