GILTI Tax Planning and Reporting

GILTI stands for Global Intangible Low-Taxed Income. It's a tax on U.S. shareholders of Controlled Foreign Corporations (CFCs) that forces them to pay current-year U.S. tax on most of the CFC's earnings — even if those earnings stayed in the foreign country as retained profits. It was enacted in the 2017 tax law to prevent U.S. multinationals from parking income in low-tax jurisdictions indefinitely, but it catches many small business owners with single foreign subsidiaries.

You may, if the foreign corporation is a CFC (more than 50% owned by U.S. persons who each own at least 10%) and you are a U.S. shareholder. Individual U.S. shareholders are generally subject to GILTI at ordinary income rates without the favorable deductions available to C-Corporation shareholders — which is why individuals running foreign operations often have much worse GILTI exposure than companies.

A Section 962 election lets an individual U.S. shareholder elect to be taxed on GILTI as if they were a domestic C-Corporation. This unlocks the 50% GILTI deduction (Section 250) and the foreign tax credit at the corporate level, often dramatically reducing the current U.S. tax. The tradeoff is that future distributions from the CFC are then taxed again (to the extent they exceed the previously taxed earnings pool). Whether to make the election is a real analysis — sometimes the savings are massive, sometimes it's a wash, and sometimes it's worse.

If the CFC's effective foreign tax rate on its tested income is at least 18.9% (90% of the top U.S. corporate rate of 21%), you can elect to exclude that income from GILTI entirely under the High-Tax Exception. For CFCs in countries with meaningful corporate tax rates (Germany, Japan, UK, Canada, etc.), this election can eliminate GILTI exposure in many cases. It requires careful qualification analysis and proper election documentation.

Yes — that's the core feature. GILTI is a "deemed distribution" regime. The CFC's earnings are taxed on your U.S. return as if they had been distributed to you, regardless of whether you actually received cash. This catches many owners off-guard because they have a U.S. tax bill on phantom income.

At a high level: the CFC's tested income minus a 10% return on tangible property (QBAI) equals the GILTI inclusion. That amount flows to the U.S. shareholder's return. For C-Corporation shareholders, a 50% deduction (Section 250) applies, bringing the effective rate to roughly 10.5%. For individual shareholders without a Section 962 election, the full amount is taxed at ordinary rates — potentially 37%. The calculation itself requires detailed CFC financials and tested income/tested loss tracking.

Yes. Most GILTI engagements start with a review of existing CFCs to confirm CFC status, calculate current-year GILTI exposure, identify planning levers (Section 962, High-Tax Exception, restructuring options), and coordinate with Form 5471 filings. Prior-year GILTI omissions are fixable through amended returns in most cases.

OBBB made several meaningful changes to the international tax regime including the GILTI framework. The Section 250 deduction percentage was adjusted, QBAI treatment changed, and some of the interaction with FDII shifted. See the OBBB International Tax page for the full breakdown. For most CFCs the direction is less favorable than the original 2017 version — planning matters more now, not less.