The Global Intangible Low-Taxed Income (GILTI) provision was added to the U.S. tax code under the 2017 Tax Cuts and Jobs Act (TCJA).
Congress’s intention behind GILTI is to prevent domestic corporations from shifting assets, income, and profits to offshore jurisdictions with lower effective tax rates from the U.S.
GILTI income refers to a U.S. shareholder’s share of net controlled foreign corporation (CFC) tested income over the shareholder’s net deemed tangible income.
History of Foreign Earnings and U.S. Taxes
Historically, a U.S. corporation with foreign subsidiaries would only need to include foreign earnings in their total taxable income if the foreign profits were repatriated (i.e., ordinary dividend distribution) or the foreign earnings qualified as Subpart F income under IRC Section 952.
If a corporation bypasses the Subpart F income qualification and does not repatriate any of its profits to the U.S., the U.S. parent company could indefinitely shield earnings in foreign subsidiaries from U.S. income taxes.
A U.S. shareholder calculates and reports their GILTI inclusion on IRS Form 8992 (US Shareholder Calculation of GILTI).
Additional Information
More information about GILTI and reporting for U.S. taxpayers can be found in the IRS Form 8992 instructions.