Global Intangible Low Taxed Income, or GILTI, was brought in as part of President Trump’s 2018 tax changes. Where previously, the Subpart F rules impacted CFCs with passive income, GILTI targets certain active trading companies as follows:

• Global: US tax rules apply to its citizens’ worldwide income and gains as well as reporting of their worldwide interests.
• Intangible: The target of these rules were foreign companies who derive profits from intangible assets. CFCs with tangible assets such as property and machinery would have a certain level of exclusion from GILTI based on the value of the assets. However, intangible assets include intellectual property and goodwill. Therefore, many businesses that rely on these, such as personal services, are affected by GILTI.
• Low-Taxed: For CFCs who pay high rates of Corporation Tax outside the US, these rules recognise that they should not be caught by GILTI. However, the calculation is complex and is sensitive to timing differences, book-to-tax adjustments and local tax breaks and rules.
• Income: If profits are GILTI, it is taxable income to the US owner of the CFC.

So, if you have a farm where you have barns, plant, and machinery you have a lot of tangible assets, the profit that your farm generates will broadly be associated to those assets and may be excluded from being GILTI.

However, if you are a consultant or an accountant then your CFC will not have many fixed assets. Therefore, an amount of your company profit will be GILTI.

US individual owners of CFCs are taxed on their share of GILTI at ordinary income tax rates. They are also unable to offset the tax on GILTI with personal foreign tax credits meaning that US owners suffer double tax on the profits of the CFC considered GILTI.