To prevent U.S. firms from shifting profits overseas to avoid by giving intellectual property to foreign subsidiaries, the Tax Cuts and Jobs Act of 2017 created a tax on Global Intangible Low-taxed Income (GILTI).

GILTI is different from Subpart F and does not include Subpart F items. However, GILTI is similar to Subpart F in that the U.S. firm can be taxed on overseas profits even though those profits are not distributed to the U.S. firm.

GILTI is calculated as follows:
active income of controlled foreign corporation - (depreciable tangible property * 10%) = GILTI

In short, Congress assumed that foreign firms would earn a return of 10% on depreciable tangible property (e.g., buildings, equipment). Thus, any income over and above that amount is deemed to be GILTI.

Once you have calculated GILTI, a U.S. corporation would calculate the tax due as follows:
([GILTI - (50% of GILTI)] * corporate income tax rate) - (80% of foreign taxes paid)

The U.S. corporate income tax rate as of 2020 is 21%. Thus, if the foreign company paid no foreign income taxes, the effective tax rate on the GILTI would be 10.5%.—
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