Don’t Be GILTI: Planning for Proposed Changes to the U.S. Minimum Tax Regime

August 2021

BY

Michael MasciangeloManaging Director, National International Tax Services Practice Leader

Tiffany IppolitoSenior Manager, National International Tax Services

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The Treasury Department’s Green Book releases additional details on proposed changes to the calculation of global intangible low-taxed income (GILTI) for U.S. corporations, as well as the calculation of the GILTI foreign tax credit (FTC).

As enacted as part of the Tax Cuts and Jobs Act (TCJA), both GILTI and the GILTI FTC are currently calculated on a global aggregate basis (i.e., foreign income taxes paid relating to GILTI in all foreign jurisdictions are added together and are part of one combined FTC calculation), which allows excess foreign income taxes paid in high-tax jurisdictions to be used to offset residual U.S. taxes on income earned in low-tax jurisdictions (blending). The Green Book raises concerns about this approach and proposes, among other changes, calculating both GILTI and the corresponding FTC calculations on a country-by-country basis.

In addition to requiring the country-by-country approach, the Green Book proposals would:
  • Eliminate the 10% QBAI deduction; and
  • Reduce the Section 250 deduction to 25%, thereby increasing the U.S effective tax rate on GILTI to 21% (when also considering the proposed increase in the overall corporate tax rate to 28%).
If enacted, changing both the GILTI and GILTI FTC calculations to a country-by-country approach—coupled with the additional changes proposed—could result in significant U.S. tax expense, as blending would no longer be permitted.
 

How BDO Can Help

BDO is helping multinational companies proactively anticipate and address from a strategic standpoint what might be coming in terms of the potential GILTI and GILTI FTC changes.
 
BDO can work with businesses to perform a comprehensive scenario analysis of the GILTI and GILTI FTC proposals to identify tax minimization strategies and other steps that should be considered now in advance of actual legislative proposals being issued.