GILTI Confessions: An Analysis of Maryland’s Latest GILTI Stance
On May 10, 2019, the Comptroller of Maryland published an income tax alert on the reporting and taxation of IRC §951A (GILTI). GILTI, known as Global Intangible Low Taxed Income, is a new category of income created by the Tax Cuts and Jobs Act (TCJA) of 2017. GILTI is included in the federal adjusted gross income (AGI), and the corresponding IRC§ 250 deduction for corporations is nestled into the Maryland Form 500. Through tax alert 05-19, the Maryland Comptroller had to address the mechanics of GILTI in both corporate and pass-through entity tax returns.
GILTI, Global Intangible Low Taxed Income, is a tax on the shareholders of controlled foreign corporations (CFCs) when the return on certain tangible assets is greater than 10%. These “certain tangible assets” are formally known as QBAI or qualified business asset investments. The theory behind this is that if a company invests in tangible assets, it should yield no more than a 10% return on that investment. The profit that is greater than 10% is attributed to assets housed in foreign low-tax-rate jurisdictions. Therefore, that excess profit must be sourced to the United States and taxed at a lower rate. This is achieved by permitting a deduction and a credit at the federal level. The IRC §250 deduction specifically provides C-Corps with a 50% deduction and a foreign tax credit on 80% of the foreign taxes paid. Partnerships and other pass-through entities are not entitled to a 50% haircut, as the income is passed through to the partners or shareholders, who report their aggregated share of GILTI on their returns.