17 Jun 2025

Waiting on GILTI's Big Beautiful Shift

The One, Big, Beautiful Bill Act (H.R. 1), recently passed by the U.S. House, introduces major changes to the Global Intangible Low-Taxed Income (GILTI) regime that could impact multinational corporations. It makes the current 49.2% GILTI deduction rate permanent, preventing the scheduled drop to 37.5% under the Tax Cuts and Jobs Act (TCJA) (note: the 49.2% rate reflects analytical models, not a statutory figure) (see Section 111004, p. 862). The Act also cuts the GILTI deduction from 50% to 28.5%, raising the effective tax rate on GILTI income to about 15% at a 21% corporate tax rate, and eliminates the ability to carry back foreign tax credits, altering tax planning strategies (see Section 111005, p. 862). On a positive note, the Act allows Foreign-Derived Intangible Income (FDII) deductions to be used in net operating loss calculations without a taxable income limit under Section 250. These changes aim to reduce profit shifting to low-tax jurisdictions, but the bill awaits Senate review, where further amendments may occur. In the meantime, it’s an ideal opportunity to review your clients’ GILTI exposure and model the impact of the reduced deduction and eliminated carryback provisions to optimize their tax positions before potential Senate changes.

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    Learn more about the GILTI and FDII tax regimes, each of which was introduced under the TCJA. Tax practitioners often refer to the GILTI and FDII tax regimes as a "carrot and stick" approach to international taxation. The carrot, FDII, provides a benefit for income deemed generated using foreign intangibles, with the incentive for U.S. C corporations to conduct their multinational operations from the United States. Conversely, U.S. multinational corporations avoid the stick, which is GILTI. GILTI is not a benefit, and instead acts like Subpart F, providing a deemed income inclusion when a foreign subsidiary earns certain foreign income through intangibles.
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    Discover more! Under the pre-TCJA Internal Revenue Code, most of the potential U.S. federal income tax on foreign income could be deferred. If you were a U.S. shareholder of a foreign corporation, outside of Controlled Foreign Corporation rules, foreign activities were not subject to tax on earnings until they were repatriated; meaning, the earnings would have to be paid as dividends to the U.S. shareholder.  

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