Global intangible low taxed income (GILTI) refers to income earned by multinational corporations (MNCs) from intangible assets, such as patents, trademarks, and copyrights, that are located in low-tax jurisdictions. This income is often subject to minimal taxation, making it a potential source of tax avoidance for MNCs. The Organization for Economic Cooperation and Development (OECD) has developed guidelines to address GILTI, which include the use of transfer pricing rules and the implementation of anti-avoidance measures. The United States has also enacted legislation to address GILTI, known as the Tax Cuts and Jobs Act (TCJA), which imposes a minimum tax on GILTI earned by U.S. corporations.
The Best Structure for Global Intangible Low-Taxed Income (GILTI)
GILTI is a new tax regime that was introduced by the Tax Cuts and Jobs Act of 2017. GILTI is designed to prevent U.S. corporations from shifting their profits to low-tax jurisdictions.
How GILTI Works
GILTI is a tax on the foreign income of U.S. corporations. The tax is calculated on a corporation’s tested income, which is generally the corporation’s foreign income minus certain deductions and exemptions. The GILTI tax rate is 50%.
The Best Structure for GILTI
There is no one-size-fits-all answer to the question of what is the best structure for GILTI. The best structure will vary depending on the specific circumstances of each corporation. However, there are some general principles that corporations can follow to minimize their GILTI tax liability.
- Use a Controlled Foreign Corporation (CFC)
A CFC is a foreign corporation that is controlled by a U.S. corporation. CFCs are often used to shift profits to low-tax jurisdictions. However, CFCs can also be used to minimize GILTI tax liability.
By using a CFC, a U.S. corporation can defer the payment of GILTI tax until the CFC distributes its profits to the U.S. corporation. In addition, CFCs can use certain deductions and exemptions to reduce their GILTI tax liability.
- Use a Foreign Tax Credit
A foreign tax credit is a credit that a U.S. corporation can take against its U.S. income tax liability for taxes paid to foreign governments. Foreign tax credits can be used to reduce GILTI tax liability.
By using a foreign tax credit, a U.S. corporation can effectively reduce its GILTI tax liability to zero.
- Use a Hybrid Entity
A hybrid entity is an entity that has characteristics of both a corporation and a partnership. Hybrid entities can be used to minimize GILTI tax liability.
By using a hybrid entity, a U.S. corporation can take advantage of the pass-through taxation of partnerships while still retaining the limited liability of a corporation.
Table: Comparison of GILTI Structures
The following table compares the three GILTI structures discussed above:
| Structure | Deferral of GILTI Tax | Use of Foreign Tax Credit | Use of Hybrid Entity |
|---|---|---|---|
| Controlled Foreign Corporation | Yes | Yes | No |
| Foreign Tax Credit | No | Yes | No |
| Hybrid Entity | Yes | Yes | Yes |
Conclusion
The best structure for GILTI will vary depending on the specific circumstances of each corporation. However, the three structures discussed above can be used to minimize GILTI tax liability.
Question 1:
What is the definition of global intangible low taxed income (GILTI)?
Answer:
GILTI is a type of foreign income specifically associated with deemed intangible assets that a corporation derives from one or more countries or jurisdictions where the effective tax rate is less than 90% of the US corporate tax rate.
Question 2:
How is GILTI calculated?
Answer:
GILTI is calculated as the sum of the corporation’s tested income and its deemed intangible income, multiplied by the applicable GILTI tax rate.
Question 3:
What is the purpose of GILTI?
Answer:
GILTI was implemented to address the concern that US corporations were shifting intangible assets and profits to low-tax jurisdictions to avoid paying US taxes.
Well, there you have it, folks! The world can be a pretty tangled web sometimes, especially when it comes to money and taxes. But hey, don’t let it keep you up at night. Just remember, where there’s a loophole, there’s a way for the clever ones to take advantage. If you found this little journey into the world of GILTI informative, do us a solid and swing by again. We’ve got more financial adventures in store for you, so stay tuned!