Did the IRS just lower your GILTI tax?

The Internal Revenue Service (IRS) recently released final and proposed regulations dealing with the global intangible low-taxed income (GILTI) provision. This provision was part of the Tax Cuts and Jobs Act (TCJA). The new regulations include a high-tax exception (HTE) to the GILTI.

One potential benefit: taxpayers may be able to remove controlled foreign corporations (CFCs) from their GILTI inclusion amount.

What is the GILTI?

In the past, the IRS generally expected taxpayers to pay taxes on their worldwide income. Certain businesses could defer tax obligations on business earnings until bringing the earnings back into the U.S. as dividends. With the TCJA, the IRS generally exempted these foreign earnings. This was true even when taxpayers repatriated the earnings.

In an effort to better ensure businesses would not use this potential tax savings benefit to move profits outside of the U.S., Congress added a 10.5% minimum tax on GILTI. Although not a direct tax on intangible assets like copyrights, trademarks, and patents, the GILTI is meant to approximate the value of these assets held abroad.

What is excluded?

New regulations by the IRS propose the exclusion of certain foreign base company income and insurance income under the GILTI HTE. However, tax obligations may still apply for higher taxed income like active business income.

As noted in a recent piece in Bloomberg, navigating these tax laws is much like a game of poker. Taxpayers can better their odds by seeking legal counsel. An attorney experienced in tax law regarding foreign assets can discuss your options and better ensure your interests are protected.