Posted by James Financial Services Inc

The Global Intangible Low-Taxed Income and Tax Reforms

The Global Intangible Low-Taxed Income and Tax Reforms

One of the legislation's outputs for tax reform is establishing the Global Intangible Low-taxed Income (GILTI). The idea is to provide global (minimum), which brings about several issues for U.S. citizens with shares in foreign-controlled corporations. This affects individuals and partnerships the most.

It also applies to some portion of income that comes from such controlled foreign corporations (CFCs). Based on the specified code, Shareholders from the U.S. will have to include a part of the income they generate from the CFC on an everyday basis, not minding the repatriation.  

Domestic Shareholders from the U.S. (besides REITs and RICs) qualify for as much as 80% of the foreign tax credit and 50% deduction for the current year alongside the entire amount of what you have in section 78 gross-up.


The Implication of the Global Intangible Low-Taxed Income (GILTI)

For companies with impressive profit compared to the fixed asset base, Global Intangible Low-Taxed Income will affect them heavily. A few of such companies are:

  • Service companies

  • Software companies

  • Distribution companies 

The GILTI takes effect from Dec 31, 2017, the tax years of such foreign corporations. For tax years of shareholders in the U.S., that coincides with that of the foreign corporations, there are provisions from the Global Intangible Low-Taxed Income in Section 951A. This mandates all Shareholders from the U.S. to have a series of CFC that will reflect in their income.


How Companies Should Respond 

The IRS and the Treasury still need to provide additional clarification to taxpayers on what is expected of them considering GILTI. Shareholders from the U.S., however, need to assess whether the GILTI inclusion binds them.

It is in taxpayers' best interest to try and reduce their tax liability for financial reporting and estimated quarterly payments.

Should You Source for Help?

Getting GILTI inclusion is not a straightforward process. There are a series of data inputs. There is a model of assessing if GILTI bounds shareholders that are from the U.S. This model is from the International Tax Services. This model also helps determine the amount of GILTI inclusion. Also, taking the time to understand the effect of Global Intangible Low-Taxed Income (GILTI) on your firm will help reduce risk and plan.

You need help with all the intricacies of GILTI calculations. As a result, you are better off working with a tax professional or an advisor with your best interest at heart. The person should understand your business, tax structure, goals, and how TCJA works.

In sourcing for help, ensure they are capable of rendering the following:

  • Calculating deductions from section 250, annual GILTI inclusion, and residual tax from the U.S. All this is a factor of the present projection and structure.

  • Reexamining the international tax strategies based on all the alterations made by the TCJA

  • Examining strategy for transfer pricing

  • Deducing the impact of GILIT with respect to an overall entity selection. For instance, C corporations versus pass-through entities.

  • Making known the financial impact of GILTI with ASC 740



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