GILTI

GILTI
Name	GILTI
Introduced	2017
Enacted by	United States Congress
Related legislation	Tax Cuts and Jobs Act of 2017
Affected	Multinational corporations, United States multinational corporations

GILTI GILTI is a U.S. federal tax provision enacted in the Tax Cuts and Jobs Act of 2017 that targets income from foreign subsidiaries of U.S.-based companies. It functions within the Internal Revenue Code framework to reduce perceived incentives for profit shifting to low-tax jurisdictions and interacts with many international tax rules and treaties. The provision has been central to debates in Congress, discussions at the Organisation for Economic Co-operation and Development, and litigation in the United States Court of Appeals for the Federal Circuit and other courts.

Background and Purpose

GILTI was created as part of tax reform championed by lawmakers in United States Congress, including members of the Senate Finance Committee and the House Ways and Means Committee, following proposals from the Department of the Treasury and the White House. It aims to reform prior regimes like the repeal of the corporate alternative minimum tax and to replace elements of international tax rules such as Subpart F and provisions influenced by models from the Organisation for Economic Co-operation and Development and discussions involving the European Commission and the Group of Twenty (G20). Proponents in Treasury Secretary briefings argued it aligns with positions of entities such as Apple Inc., Microsoft, and General Electric that lobby through groups like the U.S. Chamber of Commerce and Business Roundtable. Critics referenced analyses from think tanks like the Tax Foundation, Brookings Institution, and Center on Budget and Policy Priorities.

Scope and Applicability

GILTI applies to U.S. shareholders of controlled foreign corporations (CFCs), bringing into U.S. taxable income certain foreign earnings of entities like subsidiaries in Ireland, Bermuda, Luxembourg, Cayman Islands, and Switzerland. The rule affects corporations such as ExxonMobil, Pfizer, Johnson & Johnson, Cisco Systems, and Alphabet Inc. with foreign affiliates in jurisdictions including Singapore, Netherlands, United Kingdom, Canada, and Germany. Ownership thresholds and definitions reference concepts governed by Subpart F and rules enforced by the Internal Revenue Service. The applicability can vary for entities organized in jurisdictions with comprehensive income tax regimes like France, Japan, Italy, and Australia and is affected by bilateral instruments like the United States–United Kingdom Tax Treaty and the United States–Ireland tax relations.

Calculation and Tax Treatment

GILTI's calculation involves determining tested income and tested loss from CFCs, subtracting a "deemed return" on tangible assets—an amount related to qualified business asset investment comparable to concepts used by Economic Cooperation and Development-level tax models—and applying a U.S. tax inclusion with a deduction for corporations that can be likened to statutory changes in the Internal Revenue Code enacted by the Tax Cuts and Jobs Act of 2017. U.S. corporations such as Chevron and Boeing compute GILTI inclusions alongside foreign tax credits, using rules that intersect with the Foreign Tax Credit regime and computations overseen by the U.S. Treasury Department. Individuals and specialized entities must account for interactions with rules governing the Personal Holding Company provisions and other sections administered by the Internal Revenue Service and adjudicated in tribunals like the United States Tax Court.

Interaction with Other Provisions

GILTI interacts with Subpart F inclusion rules, the Foreign Derived Intangible Income regime, and the foreign tax credit limit adjustments that reference sections of the Internal Revenue Code. It affects strategies employed by multinationals like Facebook, Amazon.com, Inc., Intel Corporation, Oracle Corporation, and Johnson Controls when coordinating with transfer pricing rules from the Organisation for Economic Co-operation and Development and bilateral tax treaty provisions negotiated by the United States Department of the Treasury and discussed at forums including the World Bank and the International Monetary Fund. Litigation involving GILTI has reached appellate panels including the U.S. Court of Appeals for the D.C. Circuit and involved parties represented before the Supreme Court of the United States in related constitutional and statutory disputes.

Compliance, Reporting, and Enforcement

Compliance obligations for GILTI require detailed reporting on forms and schedules administered by the Internal Revenue Service and audits coordinated by IRS Criminal Investigation and Large Business and International (LB&I) Division. Corporations such as Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, and accounting firms like PricewaterhouseCoopers, Deloitte, Ernst & Young, and KPMG provide advisory and compliance services related to GILTI calculations and documentation. Enforcement actions reference administrative guidance issued by the U.S. Department of the Treasury and may involve dispute resolution through mechanisms like the Mutual Agreement Procedure in bilateral tax treaties or litigation in the United States Tax Court and federal courts.

Criticisms and Policy Debates

Critiques of GILTI have arisen from scholars and institutions including Harvard University, Stanford University, Yale University, Columbia University, University of Chicago, and think tanks like the Urban-Brookings Tax Policy Center, American Enterprise Institute, and Center for Strategic and International Studies. Opponents argue it creates compliance complexity and uneven outcomes for companies such as Starbucks Corporation, Nike, Inc., Dell Technologies, Hewlett-Packard, and Siemens with operations spread across Ireland, Luxembourg, and Switzerland. Proposals for reform have been debated in United States Senate Committee on Finance hearings and in policy white papers from groups including the OECD/G20 Base Erosion and Profit Shifting Project, the European Commission Directorate-General for Taxation and Customs Union, and national treasuries of United Kingdom, Canada, and Australia. Controversies have involved prominent figures and institutions like Janet Yellen, Steven Mnuchin, Donald Trump, Joe Biden, and international discussions at the G20 Summit and United Nations forums.

Category:United States tax law