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Managing Separate GILTI Calculations

The 2017 tax act expanded Subpart F to require an inclusion in income of “global intangible low-taxed income” (GILTI) of a controlled foreign corporation (CFC). This is generally the amount of a CFC’s income in excess of its Subpart F income, reduced by 10 percent of the CFC’s depreciable tangible property (routine return).

The amount of the GILTI inclusion from several CFCs is determined in part on an aggregate basis at the level of the US shareholder that owns the CFCs. This includes combining income and losses of different CFCs owned by the US shareholder, and calculating the reduction for the aggregate amount of depreciable tangible property owned by such CFCs.

The language of the Internal Revenue Code requires making these aggregate calculations separately for each US shareholder of one or more CFCs. There currently is no rule permitting the calculation to be performed on a US consolidated group basis. This can result in a greater amount of GILTI inclusion.

For example, if one member of a consolidated group owns CFCs with overall $10 million of losses and another member of the consolidated group owns CFCs with overall income of $50 million (assume no Subpart F income), the GILTI inclusion would be $50 million (less the routine return of the CFCs calculated separately for each US shareholder). If instead all CFCs were owned under a single member of the consolidated group, the amount of the GILTI inclusion would be $40 million (less the routine return calculated on an aggregate basis for all CFC owned by the consolidated group).

If a US consolidated group owns CFCs under different domestic subsidiaries, the taxpayer should consider restructuring the ownership under a single domestic parent corporation. If such restructuring is implemented before the end of the taxable year, the GILTI rules will be applied as if the structure had existed for the entire year.

We note that the US Department of the Treasury may issue guidance permitting the GILTI calculation to be performed on a US consolidated group basis, and thus it may be prudent to wait until near the end of the year to implement any restructuring (to avoid possible unnecessary cost and time). We further note that under some circumstances the separate calculation of GILTI can provide a better tax result (such as when CFCs owned by one US shareholder are subject to high foreign income taxes and CFCs owned by another US shareholder have an overall loss).

© 2018 McDermott Will & Emery

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About this Author

Lowell D. Yoder, International Tax Planning, Attorney, McDermott Will, Law Firm
Partner

Lowell D. Yoder is a partner in the law firm of McDermott Will & Emery LLP and is based in the Chicago office.  He is head of the U.S. & International Tax Practice Group. Lowell’s practice focuses on international tax planning for multinational companies.   He handles cross-border acquisitions, dispositions, mergers, reorganizations, joint ventures and financings.  He advises concerning multi-jurisdictional business structures and the use of special purpose foreign entities.  He also works with an extensive network of foreign lawyers on developing structures that minimize...

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David G. Noren, International Tax Planning Attorney, McDermott Will Emery Law firm Washington DC
Partner

David G. Noren is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Washington, D.C. office.  He focuses his practice on international tax planning for multinational companies.  David’s work in this area covers a wide range of both “outbound” and “inbound” issues, with a particular focus on the “subpart F” anti-deferral rules, the application of bilateral income tax treaties, and the treatment of cross-border flows of services and intellectual property rights under transfer pricing and other rules.  He has been ranked as a leading international tax lawyer by The Legal 500 United States.

Prior to joining the Firm, David served as legislative counsel to the Joint Committee on Taxation in the US Congress where he advised the House Ways & Means Committee, the Senate Finance Committee and other members of Congress on proposed international tax legislation. He played a major role in the development of several international tax bills, including those culminating in the American Jobs Creation Act of 2004.

David also advised the Senate Foreign Relations Committee on the review and ratification of several tax treaties and protocols, carried out the international tax aspects of special investigations and studies requested by members of Congress, and assisted in the Joint Committee staff's review of large tax refunds in the international area. Prior to working in Congress, David taught in the tax program at the New York University School of Law.

David has testified in congressional hearings on international tax issues and is a frequent writer and speaker on such topics. While in law school, David was an editor of the Harvard Law Review.

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Jonathan Lockhart, McDermott Will Emery, International Tax Attorney
Associate

Jonathan Lockhart is as an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office. He focuses his practice on U.S.& International tax matters. Jonathan received his LL.M. in Taxation from the New York University School of Law and his J.D., magna cum laude, from the William Mitchell College of Law. While in law school, Jonathan served as an assistant editor for the William Mitchell Law Review and was a National Tax Moot Court participant. Jonathan also served...

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