What Is a Section 951A (GILTI) Inclusion?

A Section 951A inclusion is an amount a United States taxpayer must add to their gross income, derived from the earnings of their foreign corporations. This tax is commonly known by its acronym, GILTI, which stands for Global Intangible Low-Taxed Income. Established by the Tax Cuts and Jobs Act of 2017 (TCJA), GILTI applies to tax years starting after December 31, 2017. The purpose of the GILTI tax is to discourage U.S. companies from shifting profits from mobile assets, like intellectual property, to countries with very low or no corporate income tax. The rules create a category of foreign income subject to current U.S. taxation, regardless of whether the foreign corporation distributes those earnings as a dividend. This system aims to neutralize the tax advantages of holding profits in low-tax jurisdictions, thereby protecting the U.S. tax base.

Determining Applicability to U.S. Shareholders of CFCs

The GILTI tax provisions are targeted and do not apply to every U.S. person with foreign investments. The rules hinge on the taxpayer being a “U.S. Shareholder” of a “Controlled Foreign Corporation” (CFC). If a taxpayer does not meet both of these criteria, the GILTI inclusion rules do not apply.

A “U.S. Shareholder” is a U.S. person owning 10% or more of a foreign corporation’s stock, measured by voting power or value. U.S. persons include individuals, domestic corporations, partnerships, trusts, and estates. For example, a U.S. citizen owning 15% of a foreign company’s stock is a U.S. Shareholder. The ownership rules are broad and can be direct, indirect, or constructive, attributing ownership from related parties.

A foreign corporation is classified as a CFC if U.S. Shareholders collectively own more than 50% of its stock, measured by either voting power or value. To illustrate, imagine a foreign corporation with three owners: a U.S. corporation owning 30%, another unrelated U.S. corporation owning 25%, and a foreign individual owning the remaining 45%. Because the two U.S. Shareholders together own 55%, the foreign entity is a CFC. The GILTI rules are triggered for these specific U.S. Shareholders because they meet the 10% individual threshold and the 50% group threshold.

The tax applies only when both conditions are met. For instance, an individual owning 5% of a CFC is not a U.S. Shareholder and has no GILTI inclusion. Likewise, a person owning 20% of a foreign corporation is not subject to GILTI if U.S. Shareholders in total own only 40%, because the entity is not a CFC.

Calculating the GILTI Inclusion Amount

The calculation of the GILTI inclusion determines the amount a U.S. Shareholder must include in their gross income. The formula is the shareholder’s pro-rata share of Net CFC Tested Income minus their Net Deemed Tangible Income Return (Net DTIR).

The starting point is determining the Net CFC Tested Income. This figure is the aggregate of the shareholder’s pro-rata share of “tested income” from each of their CFCs, reduced by their share of “tested losses.” Tested income is the CFC’s gross income after subtracting allocable deductions and certain excluded income streams. Exclusions include:

• Income already taxed in the U.S., such as Subpart F income
• Income effectively connected with a U.S. trade or business
• Foreign oil and gas extraction income
• Dividends from related persons

The next step involves calculating the Net Deemed Tangible Income Return. This component provides a partial exemption for returns on tangible assets, isolating the remaining income presumed to be from intangible assets. The Net DTIR is 10% of the shareholder’s share of the Qualified Business Asset Investment (QBAI) of their CFCs, reduced by certain specified interest expenses.

Qualified Business Asset Investment (QBAI) is a key part of the calculation. QBAI is the average of the CFC’s adjusted basis in its specified tangible property for each quarter of the taxable year, which includes items like buildings, machinery, and equipment. This property must be depreciable under Section 167 and used in the CFC’s trade or business to produce tested income. The adjusted basis for QBAI must be calculated using the Alternative Depreciation System (ADS), which involves longer depreciation periods.

If a U.S. Shareholder owns multiple CFCs, the calculations are done on an aggregate basis. The shareholder combines the tested income, tested losses, and QBAI from all their CFCs. This results in a single net GILTI inclusion amount.

Allowable Deductions and Foreign Tax Credits

After calculating the gross GILTI inclusion, taxpayers can use deductions and foreign tax credits to reduce the resulting U.S. tax liability. These mechanisms aim to prevent double taxation on income that may have already been taxed abroad while still imposing a minimum U.S. tax.

For corporate U.S. Shareholders, Section 250 of the Internal Revenue Code provides a deduction equal to 50% of the GILTI inclusion amount. This deduction is subject to a taxable income limitation. With a 21% corporate tax rate, this deduction effectively reduces the rate on GILTI to 10.5%. For tax years beginning in 2026, this deduction is scheduled to decrease to 37.5%, which would raise the effective tax rate to 13.125%.

Corporate U.S. Shareholders can also claim “deemed-paid” foreign tax credits for income taxes paid by their CFCs. The credit is limited to 80% of the foreign income taxes paid or accrued by the CFC on its tested income. Individuals who are U.S. Shareholders can also access these credits if they make a special election under Section 962.

The GILTI high-tax exclusion is another available planning tool. A shareholder may elect to exclude a CFC’s income from the GILTI computation if the income was subject to a high foreign tax rate. The threshold for “high-tax” is an effective foreign tax rate greater than 90% of the U.S. corporate tax rate, which is currently 18.9% based on a 21% U.S. rate. This election is made on an annual basis and is an all-or-nothing choice for a given year, applying to all of the shareholder’s CFCs.

Required Tax Forms and Reporting

Complying with the GILTI rules involves specific and detailed reporting on several tax forms. The two primary forms for GILTI compliance are Form 5471 and Form 8992.

Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, requires detailed financial reporting about ownership in foreign corporations. This includes the foreign entity’s income statement and balance sheet. For GILTI, Form 5471 provides the raw data, like the CFC’s gross income and expenses, needed for the calculation.

Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), is the dedicated form for the GILTI calculation. Using data from Form 5471, the shareholder calculates their pro-rata share of tested income or loss and QBAI on Schedule A of the form. The main part of Form 8992 then aggregates these amounts from all CFCs to compute the final net GILTI inclusion amount, isolating it from other foreign income calculations.

The final GILTI inclusion amount is carried to the shareholder’s main tax return. A corporate shareholder reports it as “other income” on Form 1120, U.S. Corporation Income Tax Return. An individual shareholder includes it on Schedule 1 of Form 1040. The related deduction is claimed on the corporate return, and foreign tax credits are claimed using Form 1118, Foreign Tax Credit—Corporations.