GILTI is computed at the US Shareholder level on an aggregate basis for all CFCs owned by the US shareholder.

FTC allowed equal to 80% of foreign taxes paid by CFCs with tested income. Foreign taxes paid by CFCs with tested income go into separate FTC limitation category and no carryover is allowed for unused FTCs.

If a CFC has a tested loss, the foreign taxes of that CFC are not creditable and the return on tangible business assets (QBAI) of that CFC are excluded from GILTI computation.

US shareholder is deemed to receive as a deemed dividend 100% of foreign taxes deemed paid with respect to tested income (not 80%).

A deduction of up to 50% (of GILTI plus section 78 gross up) is generally allowed (reduced to 37.5% in 2026), which may reduce effective US tax rate on GILTI to 10.5%. If US group has a current overall loss (after taking into account FDII and GILTI), no 50% deduction (and FTCs on GILTI are lost).

As a result of 50% deduction for GILTI and 80% FTC, it has been stated that corporate shareholders with ETR of at least 13.125% may be “exempt” from GILTI. As discussed below, this is not entirely true.

Expenses allocated to the GILTI FTC basket reduce the FTC limitation for GILTI and generally result in GILTI being subject to US tax even if the foreign effective tax rate exceeds 13.125%.

All of a CFC’s earnings that are taken into account for purposes of the GILTI computation (i.e., all earnings that are not otherwise Subpart F or ECI or high taxed income) even if not subject to U.S. tax because of FTCs are treated as PTI.

Businesses that are not C corporations, as well as individual taxpayers that are CFC shareholders, are ineligible for the 50% deduction and may be ineligible for FTCs against liability for GILTI (unless they make an election under section 962 or interpose a domestic corporation) resulting in much higher effective tax rate on GILTI.

BEAT applies to US corporations that (1) have average annual US gross receipts for the last 3 years of at least $500M, and (2) have made related-party deductible payments (“base erosion payments”) totaling at least 3% of the US corporation’s total annual deductions (see page 1 of Form 1120).

If a US corporation reaches the 3% threshold, all of its base erosion payments are considered for purposes of computing the BEAT, not just the initial dollar base erosion payment that pushes the company over the 3% threshold.

The additional tax imposed by BEAT is determined by adding back to adjusted taxable income all Base Erosion Payments for the year to arrive at “modified taxable income.” The BEAT is the excess of 10% of the modified taxable income over the taxpayer’s regular tax liability for the year (net of FTCs and general business credits allowed with the exception of R&D credits).

As a general rule, base erosion payments include payments for services. There is a limited exception that applies if the service payments meet the requirements for eligibility for SCM method, determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure, and such amount constitutes total services cost with no mark-up. Controversy around whether this means entire cost plus amount is base erosion payment or only “plus” amount.

Common for US-based multinationals to reimburse foreign affiliates on a cost-plus basis for payments made to foreign vendors. Can avoid the base erosion payment for services by having direct service contracts between US parent and foreign unrelated vendors. Note that with respect to restructuring payment streams, Treasury has broad authority to issue regulations to prevent the avoidance of BEAT, including through the use of unrelated foreign persons.

Base erosion payments do not include cost of goods sold (except in situations involving expatriated entity) so US resale company is less likely to be affected by BEAT than a US company that pays for services. Consider having base erosion payments like royalties for right to use trademark included in cost of goods sold to reduce base erosion payments.

Base erosion payments include derivative payments unless the derivative payment is a “qualified derivative payment” (i.e., treated as ordinary income and recognized annually under mark to market rules). This could impact US hedge centers for example.

Base erosion payments include depreciation and amortization deduction from property acquired by US corporations from related foreign persons in taxable years beginning after December 31, 2017.

If a US corporate taxpayer has $2B of modified taxable income (10% of which would be $200M) and has $30M of FTCs which reduce the taxpayer’s $210M regular tax liability to $180M, the BEAT would be imposed on $20M ($200M - $180M), which effectively has the result of denying a credit for 2/3 (or $20M) of the FTCs.

In certain circumstances may make sense to treat certain foreign corporations as DEs of the US corporate parent to reduce the amount of Base Erosion Payments. All of the foreign tax credits of the DEs would be useable by the US parent (in a separate branch tax basket).