ABSTRACT

The Tax Cuts and Jobs Act made significant changes to the U.S. taxation of foreign earnings. The most significant change is the 100 percent dividends-received deduction that generally applies to income earned by foreign subsidiaries. This represents a shift from U.S. tax deferral to U.S. tax exemption of foreign profits, which increases the potential benefit to shifting U.S. income to low-tax foreign jurisdictions. To limit this potential income shifting, Congress enacted new rules, known as GILTI, to supplement the already existing Subpart F rules. In this article, we briefly review the history of U.S. international tax policy and analyze the technical aspects of GILTI. We then discuss some general tax planning strategies and propose four specific tax strategies for companies to consider for minimizing the increased tax burden associated with GILTI. Last, we consider whether GILTI is good tax policy and make recommendations to improve the legislation.

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