U.S. shareholders of CFCs are taxed on global intangible low-taxed income (GILTI).
A U.S. shareholder of a CFC must include in gross income for a tax year its global intangible low-taxed income (GILTI) in a manner similar to a subpart F inclusion. The GILTI is then treated as subpart F income for certain purposes of the Code (such as the PTI rules) but not others. (Code Sec. 951A(a), Code Sec. 951A(f)) For a limited foreign tax credit available for GILTI. Global intangible low-taxed income is, with respect to any U.S. shareholder for the shareholder's tax year, the excess (if any) of the shareholder's net CFC tested income over the shareholder's net deemed tangible income return. (Code Sec. 951A(b)(1))
The net CFC tested income is, with respect to any U.S. shareholder, the excess of the aggregate of its pro rata share of the tested income of each CFC with respect to which it is a U.S. shareholder over the aggregate of its pro rata share of the tested loss of each CFC with respect to which it is a U.S. shareholder. (Code Sec. 951A(c)(1))
The shareholder's net deemed tangible income return is an amount equal to the excess of (i) 10% of the aggregate of the shareholder's pro rata share of the qualified business asset investment (QBAI) of each CFC with respect to which it is a U.S. shareholder; over (ii) the amount of interest expense taken into account under Code Sec. 951A(c)(2)(A)(ii) in determining the shareholder's net CFC tested income for the tax year to the extent the interest income attributable to the expense is not taken into account in determining the shareholder's net CFC tested income. (Code Sec. 951A(b)(2))
The tested income of a CFC is the excess of its gross income over the deductions (including taxes) properly allocable to gross income, but does not include effectively connected income, subpart F income, highly-taxed foreign income, foreign oil and gas extraction income, or certain related party payments. (Code Sec. 951(c)(2)(A)) A tested loss is the excess of those deductions over that gross income of the CFC. (Code Sec. 951(c)(2)(B))
IRS has issued proposed regulations to implement the above rules, including reporting rules requiring the filing of Form 8992, U.S. Shareholder Calculation of global intangible low-taxed income. (Prop Reg § 1.951A-0 et seq.) A U.S. shareholder that is a domestic corporation is taxed at an effective tax rate of 10.5% on GILTI. This effective tax rate is achieved by means of a 50% deduction on the GILTI amount (plus the attributable Code Sec. 78 gross-up). The deduction may be limited based on taxable income. (Code Sec. 250)
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