Global Intangible

Global Intangible Low Taxed Income – GILTI for short, is a newly introduced category of foreign income added to corporate taxable income every year. It is a tax on earning that are in excess of a 10 percent return on a company’s invested foreign assets. GILTI is subject to a worldwide minimum tax of between 10.5 and 13.123 percent each year. GILTI is designed to reduce the want of companies to move profits out of the United States by using intellectual property.

Prior to the 2017 Tax Cuts and Jobs Act, the United States tax code would allow companies to defer their tax on foreign active business income until that income arrives in the United States. The United States’ Congress worried that this tax methodology would take money and business away from domestic soil, so they implemented a 10.5 percent minimum GILTI tax.

The way the new law intends to capture intellectual property is via by implementing a 10 percent QBAI exemption, QBAI stands for qualified business asset investment. This provision is a proxy for targeting returns from intellectual property.

The GILTI tax is best understood in a comprehensive example. Say a United States Corporation like Apple Inc. was the sole owner of a foreign company with a plant in Ireland with a 12.5 percent tax rate. Imagine that the plant cost $50 million to construct and the foreign income is $15 million, the corporation would calculate a GILTI of $10 million , which is derived from the total foreign income (15 million minus 5 million, 10 percent of the 50 million in assets ) The corporate tax would be $1.05 million before credits for foreign taxes (half of the $10 million of GILTI times 21 percent corporate tax rate). After reducing for Irish tax credits, the net U.S. tax income would be $0.05 million or $50,000.

While actual income tax calculations are much more complicated, this illustrates and example of what the GILTI tax would look like in terms of U.S. net tax income.