GILTI: Proposed Changes in the Taxation of Global Intangible Low-Taxed Income
link to page 1 link to page 2 link to page 1 link to page 2 
Updated November 9, 2021
GILTI: Proposed Changes in the Taxation of Global Intangible
Low-Taxed Income
The treatment of income earned abroad in U.S.-controlled
excess credits to be carried forward for five years through
foreign corporations (CFCs) has been extensively debated
2030, and for 10 years after that (with no carryback).
over the years. In the 2017 Tax Cuts and Jobs Act (P.L.
115-97), the tax treatment of foreign source income was
Example of Tax Computation
altered. The prior system imposed taxes on CFCs’ income
Table 1 provides an example of the calculation of the initial
only when they paid dividends to their U.S. owners. The
GILTI tax before foreign tax credits for current law and
system taxed in full income earned in branches and certain
under H.R. 5376 . Table 2 provides the calculation of the
types of easily shifted income of CFCs, referred to as
foreign tax credit and final tax liability.
Subpart F income. CFCs are foreign incorporated firms at
least 50% owned by U.S. shareholders who hold at least
Table 1. Calculation of GILTI Before Foreign Tax
10% of the share by value or vote.
Credits, Assuming QBAI of $200 million
(dollars in millions)
Current Treatment
The Tax Cuts and Jobs Act eliminated the tax on dividends
Current Law
H.R. 5376
and instead imposed a lower tax on CFCs aimed at
intangible income, the tax on global intangible low-taxed
Income
100
100
income, or GILTI. GILTI targeted intangible income due to
QBAI Deduction
20
10
concerns about profit shifting (i.e., moving income to low-
tax countries), because intellectual property is more easily
Income after QBAI
80
90
moved than tangible property.
Deduction
GILTI Deduction
40
25.65
In calculating income for GILTI, CFCs are allowed two
deductions. One is a deemed deduction of 10% of tangible
Income After GILTI
40
64.35
assets (buildings and equipment, called qualified business
Deduction
asset investment, or QBAI). The deduction is intended to
Tax on GILTI
8.4
13.5135
offset the normal return from tangible investments, such as
factories, leaving GILTI to largely reflect the return from
Source: CRS calculation.
intangible assets, such as drug formulas, computer
Notes: QBAI deduction is 10% under current law and 5% under H.R.
programs, technology, and brand names. The other is a
5376 . The GILTI deduction is 50% under current law and 37.5%
deduction of 50% on the remaining amount, so that, with
under H.R. 5376. The corporate tax rate is 21% under current law
the corporate tax rate of 21%, the effective tax rate is 10.5%
and 26.5% under H.R. 5376.
(21% times 50%). This deduction is scheduled to fall to
37.5% after 2025, leading to an effective tax rate of
As can be seen in Table 1, all three revisions in H.R. 5376
13.125% (21% times 62.5%).
relating to GILTI tax before foreign tax credits increase the
GILTI tax. The smaller tangible deduction in H.R. 5376
Taxpayers can credit foreign taxes paid, limited to the
leaves a larger amount of GILTI. The smaller GILTI
amount of U.S. tax due. The limit is on an overall basis so
deduction in H.R. 5376 leaves a larger amount of income
that foreign taxes in excess of the U.S. tax in a high-tax
subject to the statutory rate, and the higher statutory rate
country can be used to offset U.S. tax due in a low-tax
increases the tax.
country. For GILTI, 80% of foreign taxes can be credited to
offset GILTI tax. Unused foreign tax credits can be carried
Calculation of final tax liability taking into account the
back one year and carried forward 10 years .
foreign tax credit, as illustrated in Table 2, assumes a U.S.
parent has identical operations in a high-tax and a low-tax
Changes in the Reconciliation Bill
country. The calculation requires several steps. First, only a
The Build Back Better Act, H.R. 5376 (released November
proportional share of foreign taxes is eligible, as no foreign
3, 2021) considered under reconciliation, would make
tax credits are allowed for the excluded income under the
several changes that affect GILTI. It would reduce the
QBAI deduction. Out of the remainder, the percentage
deduction for tangible investment to 5% and the GILTI
allowed (80% under current law and 95% under H.R. 5376)
deduction to 28.5%. With the new corporate tax rate, that
is calculated. The table also illustrates the effects of
would lead to an effective tax rate of 15.051% (71.5% times
eliminating the per-country limit.
21%). It would apply the foreign tax credit on a country-by-
country (or per country) basis and would allow unused
https://crsreports.congress.gov
link to page 1 link to page 1 link to page 2 GILTI: Proposed Changes in the Taxation of Global Intangible Low -Taxed Income
Table 2. Foreign Tax Credits and U.S. Final Tax
limit. H.R. 5376 would limit interest deducted to the share
Assuming Identical Operations in a High-Tax and
of interest that is 110% of the share of worldwide income.
Low-Tax Country
Consistent with that change, U.S. interest would no longer
(dollars in millions)
be allocated to foreign source income. The bill also
provides that no head office expenses would be allocated.
Current Law
H.R. 5376
Currently, losses in one country can be used to offset
High
Low
High
Low
income in another country. H.R. 5376 would provide a per-
Tax
Tax
Tax
Tax
country treatment for losses, and only allow losses to offset
Foreign Taxes
20
5
20
5
income in another operation in the same country. GILTI
losses cannot be carried forward; the proposal would allow
Foreign Taxes, Net
16
4
18
4.5
a one-year carryforward.
of QBAI
Share of Taxes for
12.8
3.2
17.1
4.275
Current law limits the deduction for GILTI and another
GILTI Credited
provision providing benefits for foreign derived tangible
income, or FDII (i.e., a deduction aimed at providing lower
U.S. Tax
8.4
8.4
14.91
13.5135
taxes on export income reflecting intangible income by U.S.
(from Table 1)
firms), to taxable income, with no carry over for excess
Residual U.S. Tax
0
5.2
0
9.2385
deductions. Under the revision, these excess deductions
could be carried forward indefinitely.
Excess Foreign Tax
4.4
0
2.19
0
Credit
Under current law, oil and gas extraction income is
Final Tax
0.8
9.2385
excluded from GILTI. The proposal includes extraction
income, including production from tar sands and oil shale.
Excess Foreign Tax
—
2.19
(A special rule prevents foreign credits on oil and gas
Credits Carried
income to offset other income; that rule is unchanged.)
Forward
The revisions in 2017 provided “downward attribution”
Source: CRS Calculations and Table 1.
rules in which ownership by U.S. interests in a foreign
Notes: The share of taxes associated with GILTI that can be
subsidiary for purposes of determining CFC status could be
credited is 80% for current law and 95% for H.R. 5376. The U.S.
attributed through a foreign parent of a U.S. subsidiary. The
parent has a firm in each country with $100 mil ion of income and
scope of this provision would be reduced by applying only
$200 mil ion of QBAI.
to firms that are 50% owned by the foreign parent rather
than 10%.
As shown in Table 2, the creditable foreign taxes are
reduced by the share of income associated with the tangible
The proposal would move certain income items called
(QBAI) deduction, and then further reduced by the limits on
foreign base company sales and services from Subpart F to
the amount of foreign taxes associated with GILTI. The
GILTI. As noted earlier, Subpart F applies full taxation
available foreign tax credits are higher for H.R. 5376
(with foreign tax credits) to certain easily shifted income.
because the tangible deduction is lower and percentage of
Foreign base company income is income where neither the
foreign taxes associated with GILTI that can be credited is
customers nor the producers are located in the country.
higher. For current law, there is a residual tax in the low-tax
Income that involves transactions with related U.S. firms
country that is offset by the unused credit in the high-tax
would be retained in Subpart F whereas transactions with
country leaving a net liability of $0.8 million ($5.2 million
foreign-related firms would be in GILTI. Although tax rates
minus $4.4 million) and no unused excess credits (which
are higher in Subpart F, GILTI would now be more
could not have been carried forward in any case). For the
restrictive because of the limits on losses and foreign tax
proposal in H.R. 5376 , there is a larger tax in the low-tax
credits, and the revision is expected to raise revenue.
country and no offs et from excess credits in the high-tax
country. The firm has an excess credit that can be carried
For a discussion of the overall international tax regime, see
forward for five years but only to offset tax in the high-tax
CRS Report R45186, Issues in International Corporate
country (which it might not ever be able to use).
Taxation: The 2017 Revision (P.L. 115-97), by Jane G.
Other Provisions in the Reconciliation
Gravelle and Donald J. Marples.
Bill Affecting GILTI
Jane G. Gravelle, Senior Specialist in Economic Policy
Under current law, a share of U.S. interest and head office
expenses (which are deducted against all income) is
IF11943
allocated to foreign source income for the foreign tax credit
https://crsreports.congress.gov
GILTI: Proposed Changes in the Taxation of Global Intangible Low -Taxed Income
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11943 · VERSION 2 · UPDATED
Updated November 9, 2021
GILTI: Proposed Changes in the Taxation of Global Intangible
Low-Taxed Income
The treatment of income earned abroad in U.S.-controlled
excess credits to be carried forward for five years through
foreign corporations (CFCs) has been extensively debated
2030, and for 10 years after that (with no carryback).
over the years. In the 2017 Tax Cuts and Jobs Act (P.L.
115-97), the tax treatment of foreign source income was
Example of Tax Computation
altered. The prior system imposed taxes on CFCs’ income
Table 1 provides an example of the calculation of the initial
only when they paid dividends to their U.S. owners. The
GILTI tax before foreign tax credits for current law and
system taxed in full income earned in branches and certain
under H.R. 5376 . Table 2 provides the calculation of the
types of easily shifted income of CFCs, referred to as
foreign tax credit and final tax liability.
Subpart F income. CFCs are foreign incorporated firms at
least 50% owned by U.S. shareholders who hold at least
Table 1. Calculation of GILTI Before Foreign Tax
10% of the share by value or vote.
Credits, Assuming QBAI of $200 million
(dollars in millions)
Current Treatment
The Tax Cuts and Jobs Act eliminated the tax on dividends
Current Law
H.R. 5376
and instead imposed a lower tax on CFCs aimed at
intangible income, the tax on global intangible low-taxed
Income
100
100
income, or GILTI. GILTI targeted intangible income due to
QBAI Deduction
20
10
concerns about profit shifting (i.e., moving income to low-
tax countries), because intellectual property is more easily
Income after QBAI
80
90
moved than tangible property.
Deduction
GILTI Deduction
40
25.65
In calculating income for GILTI, CFCs are allowed two
deductions. One is a deemed deduction of 10% of tangible
Income After GILTI
40
64.35
assets (buildings and equipment, called qualified business
Deduction
asset investment, or QBAI). The deduction is intended to
Tax on GILTI
8.4
13.5135
offset the normal return from tangible investments, such as
factories, leaving GILTI to largely reflect the return from
Source: CRS calculation.
intangible assets, such as drug formulas, computer
Notes: QBAI deduction is 10% under current law and 5% under H.R.
programs, technology, and brand names. The other is a
5376 . The GILTI deduction is 50% under current law and 37.5%
deduction of 50% on the remaining amount, so that, with
under H.R. 5376. The corporate tax rate is 21% under current law
the corporate tax rate of 21%, the effective tax rate is 10.5%
and 26.5% under H.R. 5376.
(21% times 50%). This deduction is scheduled to fall to
37.5% after 2025, leading to an effective tax rate of
As can be seen in Table 1, all three revisions in H.R. 5376
13.125% (21% times 62.5%).
relating to GILTI tax before foreign tax credits increase the
GILTI tax. The smaller tangible deduction in H.R. 5376
Taxpayers can credit foreign taxes paid, limited to the
leaves a larger amount of GILTI. The smaller GILTI
amount of U.S. tax due. The limit is on an overall basis so
deduction in H.R. 5376 leaves a larger amount of income
that foreign taxes in excess of the U.S. tax in a high-tax
subject to the statutory rate, and the higher statutory rate
country can be used to offset U.S. tax due in a low-tax
increases the tax.
country. For GILTI, 80% of foreign taxes can be credited to
offset GILTI tax. Unused foreign tax credits can be carried
Calculation of final tax liability taking into account the
back one year and carried forward 10 years .
foreign tax credit, as illustrated in Table 2, assumes a U.S.
parent has identical operations in a high-tax and a low-tax
Changes in the Reconciliation Bill
country. The calculation requires several steps. First, only a
The Build Back Better Act, H.R. 5376 (released November
proportional share of foreign taxes is eligible, as no foreign
3, 2021) considered under reconciliation, would make
tax credits are allowed for the excluded income under the
several changes that affect GILTI. It would reduce the
QBAI deduction. Out of the remainder, the percentage
deduction for tangible investment to 5% and the GILTI
allowed (80% under current law and 95% under H.R. 5376)
deduction to 28.5%. With the new corporate tax rate, that
is calculated. The table also illustrates the effects of
would lead to an effective tax rate of 15.051% (71.5% times
eliminating the per-country limit.
21%). It would apply the foreign tax credit on a country-by-
country (or per country) basis and would allow unused
https://crsreports.congress.gov
link to page 1 link to page 1 link to page 2 GILTI: Proposed Changes in the Taxation of Global Intangible Low -Taxed Income
Table 2. Foreign Tax Credits and U.S. Final Tax
limit. H.R. 5376 would limit interest deducted to the share
Assuming Identical Operations in a High-Tax and
of interest that is 110% of the share of worldwide income.
Low-Tax Country
Consistent with that change, U.S. interest would no longer
(dollars in millions)
be allocated to foreign source income. The bill also
provides that no head office expenses would be allocated.
Current Law
H.R. 5376
Currently, losses in one country can be used to offset
High
Low
High
Low
income in another country. H.R. 5376 would provide a per-
Tax
Tax
Tax
Tax
country treatment for losses, and only allow losses to offset
Foreign Taxes
20
5
20
5
income in another operation in the same country. GILTI
losses cannot be carried forward; the proposal would allow
Foreign Taxes, Net
16
4
18
4.5
a one-year carryforward.
of QBAI
Share of Taxes for
12.8
3.2
17.1
4.275
Current law limits the deduction for GILTI and another
GILTI Credited
provision providing benefits for foreign derived tangible
income, or FDII (i.e., a deduction aimed at providing lower
U.S. Tax
8.4
8.4
14.91
13.5135
taxes on export income reflecting intangible income by U.S.
(from Table 1)
firms), to taxable income, with no carry over for excess
Residual U.S. Tax
0
5.2
0
9.2385
deductions. Under the revision, these excess deductions
could be carried forward indefinitely.
Excess Foreign Tax
4.4
0
2.19
0
Credit
Under current law, oil and gas extraction income is
Final Tax
0.8
9.2385
excluded from GILTI. The proposal includes extraction
income, including production from tar sands and oil shale.
Excess Foreign Tax
—
2.19
(A special rule prevents foreign credits on oil and gas
Credits Carried
income to offset other income; that rule is unchanged.)
Forward
The revisions in 2017 provided “downward attribution”
Source: CRS Calculations and Table 1.
rules in which ownership by U.S. interests in a foreign
Notes: The share of taxes associated with GILTI that can be
subsidiary for purposes of determining CFC status could be
credited is 80% for current law and 95% for H.R. 5376. The U.S.
attributed through a foreign parent of a U.S. subsidiary. The
parent has a firm in each country with $100 mil ion of income and
scope of this provision would be reduced by applying only
$200 mil ion of QBAI.
to firms that are 50% owned by the foreign parent rather
than 10%.
As shown in Table 2, the creditable foreign taxes are
reduced by the share of income associated with the tangible
The proposal would move certain income items called
(QBAI) deduction, and then further reduced by the limits on
foreign base company sales and services from Subpart F to
the amount of foreign taxes associated with GILTI. The
GILTI. As noted earlier, Subpart F applies full taxation
available foreign tax credits are higher for H.R. 5376
(with foreign tax credits) to certain easily shifted income.
because the tangible deduction is lower and percentage of
Foreign base company income is income where neither the
foreign taxes associated with GILTI that can be credited is
customers nor the producers are located in the country.
higher. For current law, there is a residual tax in the low-tax
Income that involves transactions with related U.S. firms
country that is offset by the unused credit in the high-tax
would be retained in Subpart F whereas transactions with
country leaving a net liability of $0.8 million ($5.2 million
foreign-related firms would be in GILTI. Although tax rates
minus $4.4 million) and no unused excess credits (which
are higher in Subpart F, GILTI would now be more
could not have been carried forward in any case). For the
restrictive because of the limits on losses and foreign tax
proposal in H.R. 5376 , there is a larger tax in the low-tax
credits, and the revision is expected to raise revenue.
country and no offs et from excess credits in the high-tax
country. The firm has an excess credit that can be carried
For a discussion of the overall international tax regime, see
forward for five years but only to offset tax in the high-tax
CRS Report R45186, Issues in International Corporate
country (which it might not ever be able to use).
Taxation: The 2017 Revision (P.L. 115-97), by Jane G.
Other Provisions in the Reconciliation
Gravelle and Donald J. Marples.
Bill Affecting GILTI
Jane G. Gravelle, Senior Specialist in Economic Policy
Under current law, a share of U.S. interest and head office
expenses (which are deducted against all income) is
IF11943
allocated to foreign source income for the foreign tax credit
https://crsreports.congress.gov
GILTI: Proposed Changes in the Taxation of Global Intangible Low -Taxed Income
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11943 · VERSION 2 · UPDATED