GILTI income - Freqeuntly asked questions and answers

GILTI income - Freqeuntly asked questions and answers

GILTI stands for Global Intangible Low-Taxed Income, and it is just awful. https://ift.tt/2MaYGHr GILTI was created in Section 951A of the US tax code by the 2017 Tax Reform. It involves incredibly complicated calculations and huge additional compliance burdens starting for tax year 2018, and for certain types of shareholders in foreign corporations, can dramatically increase taxes. Why was GILTI passed? Wasn’t tax reform supposed to make taxes simpler? Tax Reform was sold as a simplification of the US tax code. And for US taxpayers with simpler returns, their tax filings did become simpler. However, for those with interests in corporations overseas, compliance got more complicated. The purpose of the law was to discourage something called “base erosion.” Base erosion is basically profit shifting from something that is US taxable to something that is not taxable by the US. IRS GILTI changes the definition of what your tax base is, making it larger, thus subject to immediate taxes, as opposed to being able to defer taxes until a later date. Wasn’t tax reform supposed to create a territorial tax system? A quasi and limited territorial tax jurisdiction was created by Tax Reform. Certain active businesses are able to take advantage of this partial territorial tax system. For other businesses who have passive income or are structured differently can be negatively impacted by this very unhelpful portion of tax reform. The IRS has been real serious about another type of base erosion method, claimed abusive transfer price manipulation for years. In a way, GILTI is an expansion. https://ift.tt/2y8cco9 Who is affected by GILTI? US Shareholders in foreign corporation that have a lot of a passive income will be hit the hardest. For instance, if your a company has a lot of income from patent royalties that used to be US-tax deferrable, GILTI could affect you significantly. What are the GILTI tax rates? GILTI creates no additional tax rates. What it does is expand the definition of what is taxable. Controlled foreign corporation shareholders, or CFC for short, must now include with their currently taxable Subpart F income their share of the CFC’s deemed intangible income return for the tax year. Now — beware tax reform expanded CFC definition — there is possible CFC status anytime there is a U.S. shareholder of a foreign corporation anywhere in the group. The new law ends prior deferral treatment and subjects “U.S. shareholders” of CFCs, defined as U.S. persons owning at least 10% of the vote or value of a specified foreign corporation, to current tax on any income more than 10% of the CFC’s qualified business asset investment (QBAI). What this means is that GILTI will hit tech companies, service providers and firms with a high degree of intangible assets particularly hard. Are there ways to lower GILTI taxes? Most likely. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f https://youtu.be/n1cN9SSbs34 IRS Medic