GILTI (Global Intangible Low-Taxed Income)

GILTI is the annual inclusion, under Section 951A, that a US shareholder takes on the income of its controlled foreign corporations above a routine return on their tangible assets. Despite the name, nothing about the computation identifies intangibles. It is a formula, and it applies whether or not the CFC owns intangible property at all.

The mechanics run in two steps. First, aggregate tested income and tested loss across all of the shareholder's CFCs to arrive at net CFC tested income. Tested income is the CFC's gross income with a defined set of exclusions, most importantly Subpart F income, effectively connected income, and high-taxed income excluded under an election. Second, reduce that figure by the net deemed tangible income return, which is 10% of qualified business asset investment (QBAI) less certain interest expense. QBAI is the CFC's average adjusted basis in depreciable tangible property used in a trade or business. What is left is the shareholder's GILTI inclusion. Because tested losses offset tested income across the group, and because QBAI is aggregated too, the answer is a shareholder-level computation, not a per-CFC one.

The rate that lands on the inclusion depends on who the shareholder is. A domestic corporation claims a Section 250 deduction against GILTI and takes a deemed paid credit under Section 960(d) for foreign taxes on tested income, subject to a haircut and to the GILTI foreign tax credit basket, where excess credits neither carry back nor carry forward. An individual US shareholder gets neither by default and is taxed at ordinary rates on the full inclusion, which is the reason the Section 962 election exists: it lets the individual be taxed as if a domestic corporation for this purpose.

For tax years of foreign corporations beginning after December 31, 2025, OBBBA reshapes the regime and renames it net CFC tested income. The QBAI reduction and the deemed tangible income return are eliminated, so the routine-return carve-out disappears and the inclusion is measured on tested income directly. The Section 250 deduction rate changes and the foreign tax credit haircut on tested income taxes is reduced. Schedule I-1 of Form 5471 exists to feed the pre-2026 computation, so expect its structure to move.

Two practical points for preparers. The inclusion follows the same ownership test as a Category 5 filing on Form 5471, that is, US shareholder status with the stock held on the last day of the year the corporation was a CFC, so the filer list and the inclusion population are built from the same workpaper. And the inclusion creates previously taxed earnings and profits, which have to be tracked by separate category on Schedules J and P for as long as the structure exists. Getting the inclusion right and the PTEP columns wrong still produces wrong answers on every later distribution.

Related terms: Subpart F Income, Form 5471, Foreign Tax Credit, Transfer Pricing, Form 1120

Go deeper: Form 5471: Who Must File, Every Schedule, and the Errors That Trigger Penalties

The GILTI computation is mostly data plumbing: tested income and QBAI per CFC, tax attributes by basket, and PTEP carried across years without drift. Adopt's agents assemble those inputs from the underlying records and flag what does not reconcile before review. Sign up free.