The GILTI Effect: Tax Reform and Global Intangible Low-taxed Income

July 2018

The information in BDO alerts is dependent on tax policies at the time they are published. The subject matter of this alert has since been updated. To find the latest information on this topic, read Treasury Issues Proposed and Final Regulations Relating to GILTI and Other International Provisions.

What is GILTI?
The Global Intangible Low-taxed Income (GILTI) is a new provision, enacted as a part of tax reform legislation. Mechanically, it functions as a global minimum tax and introduces a lot of issues for all U.S. shareholders of controlled foreign corporations (CFCs) – especially individuals and partnerships.
  • Applies broadly to certain income generated by a controlled foreign corporation (CFC).
  • “U.S shareholders” (as defined in the Code) are required to include on a current basis the aggregate amount of certain income generated by its CFC(s), regardless of actual repatriation.
  • U.S. shareholders who are domestic - C corporations (other than RICs and REITs) are eligible for up to an 80 percent deemed paid foreign tax credit (FTC) and a 50 percent deduction of the current year inclusion plus the full amount of the Section 78 gross-up (subject to certain limitations).

Who does it impact?
GILTI will heavily impact any foreign business where profit is high relative to the fixed asset base.
  • Services companies
  • Procurement/Distribution companies
  • Software/Technology companies
It is effective for tax years of foreign corporations beginning after December 31, 2017. For tax years of U.S. shareholders in which or with which such tax years of foreign corporations end, the Global Intangible Low-taxed Income (GILTI) provisions set forth in Section 951A require a “U.S. shareholder” of one or more CFCs to include in income, on a current basis, its GILTI in a manner similar to subpart F income.

What should companies do?
While taxpayers await further guidance from the IRS and the Treasury providing specifics on the GILTI inclusion, it is prudent for U.S. shareholders to begin assessing whether they should be subject to the GILTI inclusion. In particular, taxpayers may need to take immediate action to estimate the potential tax liability for quarterly estimated payments and financial reporting purposes.
How can BDO help?
Calculating the GILTI inclusion involves a multi-step process with numerous data inputs. The International Tax Services team has developed a model for assessing whether or not U.S. shareholders may be subject to GILTI and determining at a high level the amount of any GILTI inclusion. Additionally, BDO can assist with preparing detailed GILTI calculations, along with any qualitative and quantitative support.  The BDO team is also available to assist taxpayers with computing estimates of a taxpayer’s GILTI inclusion for purposes of estimated tax payments and/or quarterly and annual financial statement disclosures.

To discuss how GILTI could impact your company, contact BDO.

Monika Loving
Partner and International Tax Practice Leader
  Joe Calianno
Partner and International Technical Tax Practice Leader

Chip Morgan
International Tax Services Partner
  Ben Vesely
International Tax Services Senior Manager