GILTI
Global Intangible Low-Taxed Income (GILTI), enacted under IRC Section 951A as part of the Tax Cuts and Jobs Act of 2017, requires US shareholders of controlled foreign corporations to include in current US taxable income a portion of the foreign corporation's earnings that exceed a routine return on tangible assets, discouraging the offshore parking of intangible profits.
Before GILTI, a common tax strategy involved transferring intellectual property — patents, software, trademarks — to a controlled foreign corporation (CFC) in a low-tax jurisdiction. The CFC would then charge US and foreign affiliates royalties, accumulating profits offshore indefinitely under the deferral rules of Subpart F. GILTI ended that deferral by treating excess CFC profits as deemed current inclusions.
The GILTI inclusion is calculated as the US shareholder's pro-rata share of the CFC's net tested income over and above 10 percent of the CFC's qualified business asset investment (QBAI) — the depreciable tangible property used in the foreign business. The QBAI carve-out provides a routine return allowance for capital-intensive businesses; only earnings above that threshold are included in GILTI.
C corporations are allowed an 80 percent foreign tax credit for taxes paid on GILTI income and a 50 percent deduction under Section 250, effectively reducing the US tax rate on GILTI to 10.5 percent for tax years through 2025 (rising to 13.125 percent in 2026 under current law). Individual shareholders of CFCs receive no equivalent deduction, making the GILTI regime significantly more burdensome for pass-through and individual ownership structures.
The interaction between GILTI, the BEAT, and the foreign-derived intangible income (FDII) deduction forms the core of post-TCJA US international tax planning for multinationals. The OECD's Pillar Two global minimum tax of 15 percent further shapes how US companies structure their foreign operations, since GILTI and Pillar Two overlap but are not identical.