How ‘Big, Beautiful Bill Act’ Changes GILTI Math, Related Matters

This commentary deals with the One Big Beautiful Bill Act changes to the “math” in the Internal Revenue Code provisions for the taxation of “Global Intangible Low Taxed Income” (GILTI) and certain related GILTI matters. Pub. L. 119-21, §70323 (July 4, 2025), effective for taxable years beginning after December 31, 2025; §951A.

The 2017 Tax Cuts and Jobs Act radically departed from the basically iron clad international tax rule that undistributed active business profits of foreign subsidiaries are not taxed. Pub. L. No. 115-97 (2017). (There had been a few short lived exceptions in Finland and NewZealand.)

That was by way of the addition (in the TCJA) of the (GILTI) rule that adds 50% (scheduled to be increased) of active income (less specified amounts related to tangible investments) of a foreign subsidiary (CFC) to the taxable income of the US shareholder of the CFC. §951A (b)(1); §951A(c)(1). The latter reference is to the Qualified Investment Business Asset amount, 10% of which is deductible in computing net GILTI.

The Current GILTI Math

The current “math” of GILTI, having regard to a current 20% foreign tax credit “haircut” for global intangible low-taxed income is as follows.

The 50% inclusion of GILTI at a 21% corporate tax rate produces 10.5% tax before consideration of any credit for any local taxes paid by the CFC on its GILTI. Suppose the CFC’s local tax rate is 10.5 %. Under rational reasoning, the US would allow the shareholder a credit of the 10.5% against the shareholder tax of 10.5% otherwise payable and therefore there would be nil US tax and overall tax of 10.5%. That seems perfectly rational.

But the US FTC rule is not rational, as it allows a FTC of only 80 % of the 10.5% paid by the CFC. That means the shareholder must pay net tax to the US of 20% of 10.5% or 2.10 % so the overall tax is 2.10% plus 10.5% or 12.60% of the GILTI. If the CFC’s tax is a least 13.125%, the GILTI tax is fully offset and there is no double tax. In that case, the US FTC is 80% of 13.125% or 10.50 %—fully offsetting the GILTI tax.

How the Act Will Change the Math

There are several key changes the Act made to GILTI (which it renamed “net CFC tested income”), two of which are relevant to this “math” discussion.

First the inclusion rate for GILTI will be increased from 50% to 60%, by reducing the deduction from 50% to 40% of the GILTI otherwise included in income. One Big Beautiful Bill Act, §70322.

Second the FTC “haircut” will be reduced from 20% to 10%. One Big Beautiful Bill Act, §70312.

How will those changes affect the GILTI math?

If the CFC pays no local tax, the new rate is 21% x 60% or 12.6%.

The new “10%" haircut and an assumed CFC tax of 12.6% will produce a net overall tax of 13.86% being 12.6 % plus 12.6.% less 90% of 12.6%.

What if we assume CFC tax of 14%? That would produce overall tax of 14% being 14% plus 12.6% less 90% of 14% (12.6%). Therefore, the new rate would be 14% only where the local tax paid by the CFC is 14%.

GILTI Beyond the US Borders

GILTI came on the scene (2017) half way between the advent of the BEPS era (2012/13) and now and has played a pivotal role in the changes in international tax law unleashed by BEPS. And to this very moment it is at the center of a tug of war among the some 140 countries (making up the so-called Inclusive Framework (IF) led by OECD) over the role of GILTI in the final design of a radical new international tax plan (known as “Pillar 2") that was inspired by the 2017 US development of GILTI and agreed to in October 2021 by the IF (including the US Administration but not Congress) but is yet not fully implemented or agreed to by its inspirer, the US (because of opposition by Republicans in Congress).

What is Pillar 2?
It is an agreement that a multinational with at least €750 MM of annual revenue will be made to pay at least 15% tax on all its profits, wherever made -whether paid to the country where the profits are earned or to the country where the earning corporation is based or to the country of an upper tier parent or perhaps even to the country of a subsidiary of the group that did not earn the profits and had no economic interest in the profits.

It is the latter possibility (under the so-called “Undertaxed Profit” (UTPR) rule) that has particularly upset Republicans in Congress—as well it should. That is, because it means for example that if a US corporation pays to the US less than 15% on its US BOOK profits (because Code tax accounting rules produce less taxable income than does GAAP) or if between the US (and GILTI) and the tax laws of the country in which a CFC of a US corporation is located the overall tax applicable to the profits of the CFC are less than 15%, a third country (say Canada) in which the US group has a subsidiary can (if Canada has adopted UTPR, which is pending) impose the under paid US or third country tax on the Canadian subsidiary even though it has no interest in the profits that give rise to that underpaid tax.

But ongoing negotiations to resolve this conflict seem to have come to fruition on June 27. This is by having the IF accept the position of the Trump Treasury (contrary to the Biden Treasury) that the US tax system (particularly GILTI) be seen as sufficiently robust to achieve Pillar 2 objectives.

Just prior to June 27, Congress had inserted, in draft H.R. 1, a retaliatory Code rule (a new proposed §899) that would have imposed extra taxes (“revenge taxes”) on the US source income of persons based in a country that imposed “discriminatory taxes” on US interests. Discriminatory taxes included those imposed by UTPR.

However, the Treasury announced on June 27 that it had agreed with the G-7 to have Congress extract proposed §899 from the draft H.R. 1 in an exchange for G-7 organizing OECD / IF to make Pillar 2 (particularly UTPR) inapplicable to US interests. And this was followed on June 28 by a G-7 statement confirming that agreement and the issue of draft H.R. 1, without proposed §899.

The new agreement effectively equates Pillar 2, 15% with the new base 12.6 % of GILTI, which may be higher if state tax applies.

The main difference, from which US parties may benefit, is that GILTI rules allow excess taxes in one CFC country to offset underpaid taxes in another. Pillar 2 does not.

What’s Next?

Will there be more twists in this tortuous road? Nothing can be ruled out.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Nathan Boidman, retired Canadian attorney and CPA, specialized in Canada-US taxation and is now founding a non-profit Canada-US taxation center.