GILTI Tax
Global Intangible Low-Taxed Income (GILTI) is a category of CFC income that U.S. shareholders must include currently, designed to prevent profit shifting to low-tax jurisdictions through intangible assets.
Explanation
GILTI equals a CFC's net tested income minus a deemed return (10%) on qualified business asset investment (QBAI). Essentially, GILTI captures income exceeding a routine return on tangible assets, as excess returns are presumed to be attributable to intangibles. Corporate U.S. shareholders receive a 50% deduction (Section 250), effectively taxing GILTI at 10.5% before foreign tax credits. Individual shareholders do not receive the Section 250 deduction unless they make a Section 962 election to be taxed as a corporation.
Key Points
- •GILTI = net CFC tested income minus 10% of QBAI
- •Section 250 deduction reduces effective rate to 10.5% for corporate shareholders
- •Targets excess returns attributable to intangible assets in low-tax jurisdictions
Exam Tip
GILTI is computed at the shareholder level by aggregating all CFC tested income and subtracting 10% of total QBAI — netting across CFCs is allowed.
Frequently Asked Questions
Related Topics
Controlled Foreign Corporations (CFCs)
A controlled foreign corporation (CFC) is a foreign corporation in which U.S. shareholders (each owning 10% or more by vote or value) collectively own more than 50% of the stock by vote or value.
Subpart F Income
Subpart F income is certain categories of passive or easily movable income earned by a controlled foreign corporation that U.S. shareholders must include currently, regardless of distribution.
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