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.
The International Tax Team at Ryan & Wetmore is well-versed in foreign informational filings. For questions or concerns regarding your international accounts and assets, click here to email our foreign tax team. Please be aware that tax issues are complicated and may vary based on the details of your situation. For this reason, an initial phone call is generally required to obtain the facts and address the questions.
Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements.
Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction.
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