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GILTI Tax Planning and How It Can Affect Your Future Planning

November 26, 2018
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As you are aware, the Tax Cuts and Jobs Act of 2017 (TCJA) basically ended the credit and deferral system that had been in existence in the U.S. for decades, affecting tax planning for offshore businesses. Now that we have addressed the planning and compliance issues with the transition tax for 2017, we need to focus more on global intangible low-taxed income (GILTI) planning. Since late December 2017 when the TCJA was enacted, we have provided guidance on GILTI through firm-wide emails, webinars, and live training sessions, addressing the mechanics of the GILTI calculation as well as planning opportunities to minimize the adverse U.S. tax implications.

Due to the timing of the new legislation, most businesses and advisors were focused on properly complying with the international tax provisions effective for the 2017 tax year and may not have considered the impact of GILTI on controlled foreign corporations (CFCs). Accordingly, with the 2017 compliance season behind us, it is now time to more thoughtfully move forward with GILTI planning.

GILTI – Global Intangible Low-Taxed Income

GILTI is a new tax regime effective for tax years beginning after January 1, 2018 that is aimed at offshore businesses structured as CFCs. It is a regime that looks to tax currently profits that normally would have been deferred under the U.S. system prior to January 1, 2018. There will be a minimum tax that will be calculated, similar to the current Subpart F regime. “GILTI” is a misnomer, as it does not merely target intangible or low-taxed income. Rather, legitimate service businesses, as well as other minimally capital intensive businesses, are caught in this new tax system. How the tax will be calculated, and at what rate, will depend on the structure of domestic and offshore businesses. Each case will need to be evaluated separately.

The time for planning for GILTI is now, as there are certain action items to consider before year-end. For more information, contact your Citrin Cooperman International Taxation Services advisor.