GILTI Tax Planning | Getting Tax Efficient Once Again
When the 2017 Tax Cuts and Jobs Act (TCJA) became law, a new international corporate tax system went into effect, replacing a tax system that dated back to 1962.
This new tax system includes the Global Intangible Low-Taxed Income (GILTI) tax, which applies to US individuals and US businesses that have certain levels of ownership in foreign corporations.
We think of the GILTI tax as being similar to an alternative minimum tax. It is calculated each year on the operating income of controlled foreign corporations (CFCs). And it seeks to ensure that they pay at least a certain level of tax on all earnings.
In this new era of taxation, many international businesses are impacted by the GILTI tax. As a result, business structures that were tax-efficient under the old laws are no longer tax-optimal under the new laws.
Fortunately, we’ve developed ways to help clients become tax-efficient under this new system. GILTI tax planning is the way to do that.
GILTI Tax Planning
Unlike most US CPA firms, we are a boutique firm that has been specializing in international tax strategies for decades, so we have extensive, deep, and tested expertise.
We help our clients who are now subject to GILTI understand how the new tax law affects their annual US tax filing requirements for both the informational reporting and the potential income tax due.
We typically calculate several alternative scenarios to determine how to minimize the consequences of GILTI, if applicable. Our planning scenarios consider the long-term goals and objectives of the foreign corporation before implementing GILTI tax planning scenarios. See “Our GILTI Planning Process” below for more detail.
Frequently Asked Questions about the GILTI Tax
By not taking action, many companies and business owners are paying unnecessary additional tax on their companies’ operating income each year! Before the TCJA, businesses could defer paying taxes on their overseas earnings. The TCJA (“tax reform”) completely changed that. The GILTI tax is assessed on operating income every year. But your business structure and tax strategies can be optimized to reduce the new tax. At the end of our GILTI planning, there is full transparency as to how the current law will impact your specific situation and the proper structure to minimize GILTI taxes.
When GILTI planning is done correctly, you shouldn’t need an in-depth plan in subsequent years. However, like any plan, it’s important to check in regularly to make sure that the plan still makes sense. Each year, a year-end review can show whether changes in your business or the tax law might materially affect the original GILTI plan. Think of this as a GILTI “check-up.”
Yes! If you’re an individual with direct ownership, be sure to read our article about how to reduce your individual tax burden by double digits.
Our fee for GILTI planning services is typically based on the complexity of the foreign corporation(s). We seek to provide you with transparency upfront. To this end, we review the facts and circumstances that you shared with us in initial discussions of your foreign corporation and quote you an estimated fee accordingly. You can avoid pitfalls by disclosing material facts upfront and providing timely, complete, accurate, and translated (to English) financial information in one submission (i.e., not piecemeal).
We believe in simplifying international tax complexity. That’s what drives us every day. Not every client is a good fit for us, and when that’s the case, we’re willing to say so. We thrive on assisting small and mid-sized businesses with their international tax needs. Entrepreneurs and emerging multinationals face different challenges than large publicly traded companies. And it’s with these growing privately held companies that we can add the most value. As a boutique firm, we offer more personalized service and high-quality deliverables that can stand up to IRS scrutiny. We love what we do, and that’s why we focus exclusively on international tax matters.
Our GILTI Planning Process
Our GILTI planning process includes 6 steps:
Step 1 – Help you understand how you are currently taxed under the new regime.
Things have changed! At a high level, you should know the tax impact on your business if your business stays the same as it is today.
Step 2 – Identify the options, actions, and potential changes to business structure that might yield a better result
Achieving a better tax outcome doesn’t always involve making big changes. Sometimes, small adjustments can significantly decrease your taxes. Big or small, these changes must align with other business objectives and constraints. We identify the types of changes that could make sense for your business and potentially provide significant ongoing tax savings.
The result of this step is a list of scenarios that reflect the minor or major changes that you are considering making in your business. (We don’t include scenarios that are outside your abilities or comfort zone.)
Step 3 – Use actual data to run projections to evaluate expected tax results under different scenarios
Each business’s facts and circumstances are different! And many factors combine to influence the final tax numbers. We advise you on the tax solutions that are likely to yield better results. However, the real value comes from running the scenarios from Step 2 with actual data from your business. These data may include year-to-date financials, projected financials, asset values, foreign corporate and dividend tax rates, ownership structure, and owner considerations. We also take into account other business objectives and parameters. This step reveals the estimated tax impacts of the combined factors unique to your business.
Step 4 – Make a recommendation and explain the pros and cons of the recommended changes over your existing structure
Based on the results of Step 3, we recommend a way forward. And we help you understand the pros, cons, and implications of the recommended changes.
Step 5 – Refine the projections and the GILTI plan
Once a primary course of action is identified, you may have further questions about the impact of certain minor changes. In this step, we consider those nuances and refine the projections. The result is a written GILTI plan, which outlines the final recommendations.
Step 6 (recommended) – Review the GILTI plan’s impact on taxes outside the US
Once the GILTI plan is in place on the US side, it’s important to check that it won’t generate any tax surprises in other countries. We recommend that you take this final step with your foreign tax advisors. If you don’t have a foreign tax advisor, we can help. Through our Nexia International network, we can connect you with tax professionals in the other countries where your business operates. We can also coordinate directly with them to ensure that the final GILTI plan minimizes your tax on a global scale.
Ready for a free discovery call?
Client Story of GILTI Tax Planning in Action
The owner of an IT company in the Middle East contacted us because he just became a US resident during the year and wanted to know how to minimize the US taxes related to his business.
How We Helped This Client
As part of our GILTI tax planning services, we:
- Helped the client understand how he would be taxed with his existing business structure if he made no changes
- Reviewed data from company financials, gathered information on ownership structure and other business factors and interviewed our client on his objectives, constraints, and priorities
- Ran projections under a variety of scenarios
- Analyzed state tax implications
- Ultimately recommended a different business structure to meet his business goals and objectives
As a result, the business owner restructured the business to reduce his next year’s US tax bill from an estimated $396,000 to $16,000. Furthermore, the new structure is expected to save him $100,000 in state taxes.
Why The Wolf Group?
Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.
Check out our extensive team of CPAs, all with vast international tax experience.
Looking for a Nexia International Partner?
We’re an active member of Nexia International, a global network of independent accountancy, tax and business advisors with over 250 firms around the globe.
Meet our tax professionals
Ready for a paid consultation?
What our clients say
“The staff of The Wolf Group with whom we were in contact was prompt, responsive, and helpful. Their professionalism is impeccable. Tax filing time has always been an ordeal for me, relieved only by the knowledge that we can rely on the assistance and support of TWG.”
“We are a long-standing customer and are fully satisfied with the services we receive.”
“As always, I have appreciated the quality of the advice and the rapid response to my questions.”