GILTI

Question 1

GILTI

Answer 1

• US shareholder of CFCs includes its pro rata share of “global intangible low-taxed income” (“GILTI”) (IRC § 951A)
• GILTI = excess (if any) of the shareholder’s “net CFC tested income” over “net deemed tangible income return”
• Corporate US shareholder (other than RIC or REIT or S corp) are generally allowed a deduction 50 percent of the inclusion (37.5 percent for taxable years beginning after 2025) (IRC § 250(a)(1)(B)) subject to the taxable income limitation
• FTCs:
  − Separate GILTI basket; no carryover of FTCs
  − Corporate US shareholder is deemed to pay 80% of the foreign taxes allocable to the tested income that produces the GILTI

Question 1

FTCs

Answer 1

− Separate GILTI basket; no carryover of FTCs
− Corporate US shareholder is deemed to pay 80% of the foreign taxes allocable to the tested income that produces the GILTI

Question 2

GILTI

Answer 2

• US shareholder of CFCs includes its pro rata share of “global intangible low-taxed income” (“GILTI”) (IRC § 951A)
• GILTI = excess (if any) of the shareholder’s “net CFC tested income” over “net deemed tangible income return”

Question 3

§250 Deduction

Answer 3

Corporate US shareholder (other than RIC or REIT or S corp) are generally allowed a deduction 50 percent of the inclusion (37.5 percent for taxable years beginning after 2025) (IRC § 250(a)(1)(B)) subject to the taxable income limitation

Question 4

US shareholder’s § 951A income inclusion = GILTI =

Answer 4

US shareholder’s Net CFC Tested Income – US shareholder’s Net Deemed Tangible Income Return

Question 5

US tax on GILTI of domestic corporation =

Answer 5

[21% × (GILTI + related § 78 gross-up – § 250(a)(1)(B) deduction)] - FTCs

Question 6

Mechanical Formula for arriving at global “intangible income”

Answer 6

Excess (if any) of—
* Aggregate of US shareholder’s pro rata share of the tested income of each CFC that has tested income for the CFC’s year that ends with or within the US shareholder’s year, over
* Aggregate of US shareholder’s pro rata share of the tested loss of each CFC that has a tested loss for the CFC’s year that ends with or within the US shareholder’s year
– Tested income and tested loss are CFC-level attributes
– A CFC either has tested income or a tested loss for a tax year (not both)
– Net CFC tested income is US shareholder-level attribute taking into account all its CFCs

Question 7

NDTIR is also US shareholder-level attribute taking into account all its CFCs

Answer 7

Excess of:
* 10% of aggregate of US shareholder’s pro rata share of the qualified business asset investment (QBAI) of each CFC for the CFC’s year that ends with or within the US shareholder’s year, over
* interest expense taken into account in computing net CFC tested income, to the extent that the interest income attributable to such expense is not taken into account in determining such shareholder’s net CFC tested income (e.g., interest expense paid to persons other than CFCs of the US shareholder).

Question 8

NDTIR =

Answer 8

(10% × ∑ US shareholder’s pro rata shares of CFCs’ QBAI) – Specified Interest Expense

Question 9

QBAI

Answer 9

• QBAI is a CFC-level attribute
• For any CFC for a tax year, average of the CFC’s adjusted bases as of the close of each quarter in specified tangible property—
  a. Used in a trade or business of the CFC; and
  b. Of a type with respect to which a deduction is allowable under § 167
• “Specified tangible property” is any tangible property used in the production of tested income (Treas. Reg. §1.951A-3(c)(1))
  − A tested loss CFC does not have QBAI
  − Tangible property is property for which the depreciation deduction provided by §167(a) is eligible to be determined under §168 without regard to §168(f)(1), (2), or (5), and §168(k)(2)(A)(i)(II), (IV), or (V), and the date placed in service (Treas. Reg. §1.951A-3(c)(2))
• Adjusted basis must be computed using the alternative depreciation system (ADS)

Question 10

A CFC’s tested income is the excess (if any) of:

Answer 10

‒ the gross income of the CFC without regard to certain items, over
‒ the deductions (including taxes) properly allocable to such gross income.

Question 11

Items excluded from gross income for tested income:

Answer 11

‒ US source ECI (as described in § 952 (b))
‒ Gross income taken into account in determining subpart F income
‒ Amounts excluded from foreign base company income and insurance income under § 954(b)(4) (high tax exception from subpart F)
‒ Related party dividends (as defined in § 954 (d)(3)) ‒ Foreign oil and gas extraction income (as defined in §907 (c)(1))

Question 12

A CFC’s tested loss is the excess (if any) of:

Answer 12

− The deductions (including taxes) properly allocable to gross tested income, over
− The gross tested income.

Tested loss increases the E&P of a CFC for purposes of applying § 952(c)(1)(A) (the “E&P cap” on
Sub F income)

Question 13

§ 250 Deduction for Domestic Corporations

Answer 13

US tax on GILTI of a domestic corporation =
[21% × (GILTI + §78 gross-up – § 250(a)(1)(B) deduction)] - FTCs

If taxable income (w/o regard to § 250) ≥ FDII + GILTI, then § 250 Deduction = 37.5%* × FDII + 50%* × (GILTI + §78 gross-up)
*Percentages are reduced to 21.875% and 37.5%, respectively, for tax years beginning after December 31, 2025

Question 14

Net CFC Tested Income =

Answer 14

Aggregate of CFCs’ Tested Income – Aggregate of CFCs’ Tested Loss

Question 15

Tested Income =

Answer 15

Gross Tested Income – Properly Allocable Deductions (if positive)

Question 16

§ 250 Deduction =

Answer 16

37.5% × FDII + 50% × (GILTI + §78 gross-up)

Question 17

Deemed-paid tax =

Answer 17

80% × Aggregate Tested Foreign Income Taxes paid or accrued by CFCs × Inclusion Percentage

Question 18

Gross tested income does not include any gross income included in the items of…

Answer 18

Subpart F income defined in §952(a) (e.g., insurance income, adjusted net foreign base company income, and international boycott income). See Treas. Reg. §1.951A 2(c)(4).

Question 19

Allocation of deductions to gross tested income

Answer 19

• Gross income and allowable deductions determined under Treas. Reg. §1.952-2(c)(2).
• Allowable deductions are allocated and apportioned to gross tested income under the principles of §954(b)(5) and §1.954-1(c) (see Treas. Reg. §1.951A-2(c)(3)).
  − Gross tested income that falls within a single separate category is treated as a single item of gross income.
  − Losses in other separate categories cannot reduce any separate category of gross tested income
  − Losses in a separate category of gross tested income cannot reduce income in a subpart F income category

Question 20

Specified Tangible Property Exceptions

Answer 20

• “Disqualified basis” and basis in “temporarily held” specified tangible property are disregarded
• Special rules apply for short tax years and dual use property (tangible property of a tested income CFC used in both the production of gross tested income and gross income that is not gross tested income for a CFC inclusion year)

Question 21

Alternative Depreciation System (ADS) under §168(g)

Answer 21

(Treas. Reg. § 1.951A-3(e))
− Determined as if ADS had applied from the date that the property was placed in service
− ADS applied by allocating depreciation ratably to each day during the period in the CFC inclusion year to which the depreciation relates

Question 22

Specified Interest Expense =

Answer 22

∑ U.S. Shareholder’s Pro Rata Shares of Tested Interest Expense — ∑ U.S. Shareholder’s Pro Rata Shares of Tested Interest Income

Question 23

Tested interest expense/income defined

Answer 23

− Tested interest expense generally interest expense of a CFC allocated/apportioned to gross tested income
− Tested interest income generally interest income of a CFC that is gross tested income
* Tested interest expense reduced if tested loss CFCs have basis in specified tangible property (i.e., that would have had QBAI) (§1.951A-4(b)(1)(i))