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US Expat Tax Issues: Global Intangible Low Taxed Income (GILTI)

Transcript of the above video:

In this video today, as the title suggests, we are going to be discussing global intangible low taxed income as well as so-called foreign derived intangible income.

Basically what are we talking about with respect to this? Well first of all let's put this in perspective. In other videos on this channel I have discussed so-called "Trump tax" as I call it. I believe it is HR -1 from the government printing office I think the name of the act or the title of the act is the" Tax Cuts and Jobs Act" so I think that's what it's called, HR-1; basically as I call it, the "Trump tax" it's the newly-promoted tax regime that's come about from the new Administration in the United States. 

So Global intangible low taxed income: As I sort of pontificated on in a prior video on this channel. It's my opinion that the tax powers-that-be if you will, are trying to create a system that disincentivizes opacity abroad and incentivizes disclosure of matters pertaining to operations of American owned or American operated companies abroad and this is being done in various ways as noted in the  prior video on "deemed repatriation" that is on this channel. There are ways that this is being done with respect to so called retained earnings. There is also, as noted In the video I've gone through I think with respect to large corporations, I actually think that their international operations are going to get a lot more straightforward especially where a large multinational is operating or at least has an onshore incorporated entity in the United States, I think the "Trump tax" plan could result in a much more streamlined and, at least relative to the last regime, a lot of tax mitigation factors. For the individual who just happens to own a company overseas or more than one company overseas for that matter, or the individual who is  maybe in fact just operating or is in the minority position with the company overseas depending on their position, I actually think that this tax initiative could in a lot of ways create some, I won't say problems, but it could create some difficulties because disclosure is going to be important as part of this and also again there seems to kind of be, for lack of a better term a "war on opacity" sort of  the murky nature.  It just comes with the territory in certain offshore jurisdictions, that they are just not as sophisticated, for lack of a better term with respect to tax enforcement, regulatory enforcement compared to say the United States. That being said, you know, not all jurisdictions are like that. There are simply jurisdictions where you know they take a different view on things like ready cash of a corporation or they take a different view with respect to how detailed bookkeeping, ledger keeping, and accounting needs to be,  especially in jurisdictions that have very little onshore taxes. It will depend, although in my most jurisdictions that I have ever dealt with that have a fairly low onshore tax rate they still have quite strict rules with respect to disclosure and accounting. But that being said there is just differentiations between jurisdictions and how they deal with issues pertaining to things like for example like retained earnings. And as a result, it looks to me like especially with this global intangibles, you have basically got a regime where they are trying to get a handle on basically taxing what can only be described as intangible income; income that cannot be sort of readily defined for lack of a better term. Under the new law, section 951 - A, “global intangible low taxed income now is included in gross income of United States shareholders”, so that is an interesting component. As part and parcel of that, they are basically going to come in and throw a mandatory minimum tax rate on that global intangible income. This is the other thing as I have mentioned before. Again I think that this stuff is designed to keep people from moving income around within entities so as to avoid having personal income that may create disadvantageous positions from them with respect to their individual income tax position. So what am I talking about here? For example, let's just take again retained earnings. There may be a set of circumstances, where within one fiscal year, I shouldn't say fiscal, within one calendar year it's not advantageous to go ahead and just pay oneself out a bonus out of a company's retained earnings in say December but if one turns around and pays it in January it would be a better deal because you can essentially shift that burden from one place to another or fully shift it entirely where you just keep assets in the company rather than move it into one's individual balance sheet for lack of a better term. Move it on to oneself as individualized income. There is just going to be a certain set of situations where that would be advantageous under the old regime. Now with this intangibles it looks like they are trying to again disincentivize opacity and they are trying to disincentivize the shifting I am talking about, where one source of keeps what can only be described as controlled assets or controlled funds in a corporate structure so as to sort of side step possible tax liability. It seems like they're trying to disincentivize that kind of behavior and then US shareholders I should say of controlled foreign corporations are going to be subject to US tax on this global intangible low taxed income. Again this is just a term that they have come up with, this is the trick of law which is you sort of invent your own language and then create the enforcement scheme by which you are going to go ahead and deal with that.  So having stuff deemed global intangible low tax income and owning shares in a company that has that type of income in it, can be problematic in the future. It should be noted that this is only this becomes this became effective December 31st, 2017 so this is mostly moving forward. In my opinion there are ways to deal with this most notably especially in those situations where it's rather a marginal issue. if you've got you know a situation where you are sort of worried about the intangibles hitting you, it is probably a good idea to simply, you know to pay yourself for lack of a better term if it's a business for lack of a better term a cut out for you, you know like an LLC type of structure; basically just an entity that's designed sort of custom fit to an individual. Moving forward there maybe I can see scenarios where it may be beneficial to simply pay a little bit extra, possibly extra income tax rather than creating a situation where one might run into having to deal with this global intangible tax. That being said, there are certain, I am not going to get into any further details on this specifically, there are certain deductions which are going to be associated which onshore entities in the United States may be able to, I think it's up to 50%, onshore entities can deduct off some of this stuff but that being said again this should not be viewed as a definitive sort of video on this topic. It should simply be viewed as an overview and I'm driving to provide my own insights having recently read this and researched this topic but this is pretty significant and I think it will be significant moving forward for companies that have American shareholders.