Global Intangible Low-Taxed Income (GILTI)

Global Intangible Low-Taxed Income (GILTI) refers to a provision in the U.S. tax code that applies to controlled foreign corporations (CFCs). GILTI is designed to tax U.S. shareholders on certain income earned by their CFCs that exceeds a fixed return on tangible assets.

Under GILTI, U.S. shareholders must include in their taxable income the excess of the CFC’s net tested income over a deemed return of 10% on the CFC’s qualified business asset investment (QBAI). This provision aims to prevent U.S. companies from shifting profits to low-tax jurisdictions and applies to both corporations and individuals who own shares in CFCs.

For example, if a U.S. parent company has a CFC that generates $1 million in net tested income and has $5 million in tangible assets, the deemed return would be $500,000 (10% of $5 million). Therefore, the GILTI inclusion would be $500,000 ($1 million – $500,000), which would be subject to U.S. taxation.