Overview: The One Big Beautiful Bill Act (OBBB) renamed Global Intangible Low-Taxed Income (GILTI) to Net CFC Tested Income (NCTI), focusing on income earned by Controlled Foreign Corporations (CFCs). While the name change is largely cosmetic, it highlights a more precise and broad definition of income subject to U.S. taxation aimed at curbing profit-shifting to low-tax jurisdictions. U.S. shareholders of CFCs should continue to track and report NCTI to ensure compliance with international tax rules and take advantage of available foreign tax credits.
In a significant shift under the One Big Beautiful Bill Act (OBBB), the Global Intangible Low-Taxed Income (GILTI) was renamed to Net CFC Tested Income (NCTI). The name change, though, is not just a simple rebranding; it carries important implications for U.S. taxpayers with foreign subsidiaries, especially when it comes to international tax compliance and planning.
What is NCTI (Formerly GILTI)?
To fully understand the impact of this renaming, it’s essential to first understand what GILTI (now NCTI) represents. Under previous tax law, GILTI was created by the Tax Cuts and Jobs Act (TCJA) in 2017 to address the shifting of profits to low-tax jurisdictions by U.S. companies operating through Controlled Foreign Corporations (CFCs). A CFC is a foreign corporation in which “U.S. shareholders” (individuals or entities) own more than 50% of the voting stock or total value. The GILTI regime required U.S. shareholders of a CFC to include in their taxable income certain types of income earned by the CFC, even if that income was not repatriated to the U.S.
Now, under the OBBB, GILTI received a name change, and has become a broader definition of income. NCTI still targets low-taxed, income and aims to discourage U.S. taxpayers from artificially shifting profits to foreign subsidiaries in tax haven jurisdictions. However, the calculation no longer includes qualified business asset investments (QBAI) as a deduction component, therefore, the income considered is more inclusive and without regard to if it is intangible or not.
What Has Changed with the Name Change from GILTI to NCTI?
NCTI still refers to the income earned by a CFC that is subject to U.S. taxation. It is income earned by the foreign subsidiary that was taxed at a low rate or has escaped U.S. tax under traditional deferral rules.
However, the removal of the word “intangible” is due to there no longer being a deduction for fixed asset investments, which makes all income subject to potentially being taxable regardless of its relation to intangible income.
NCTI remains the starting point for the calculation of the tax liability under the regime, just as GILTI was before. With this more encompassing definition, deferred income will need to be analyzed to see if it now will be taxable.
What Does the GILT to NCTI Renaming Mean for U.S. Shareholders of CFCs?
While the renaming of GILTI to NCTI may seem like a small change, it demonstrates that the government has foreign income and reporting high on its radar to be digging so deep into the details. Here’s what U.S. taxpayers and businesses should do in response:
- Review Your CFC Income:S. shareholders of CFCs should continue to closely track their NCTI. This income is still subject to U.S. taxation, even if it is not repatriated. While the name may have changed, the need to monitor foreign income for tax compliance remains.
- Ensure Proper Calculations of NCTI: As the rules around NCTI now focus on potentially taxing all income of foreign subsidiaries, businesses must continue to ensure that they accurately calculate the CFC’s income subject to taxation.
- Take Advantage of Foreign Tax Credits: The NCTI regime continues to allow U.S. shareholders to offset some of the tax liability through foreign tax credits. The transition from GILTI to NCTI slightly increases the availability of these credits, so businesses should ensure that they are correctly accounting for foreign taxes paid and applying them to reduce their U.S. tax burden.
- Stay Updated on Related International Tax Reforms: With the change to NCTI, it’s essential for businesses with foreign subsidiaries to stay informed about broader tax reforms, especially those related to the OECD’s efforts on base erosion and profit-shifting (BEPS). The name change may signal further reforms in the future, and it’s crucial to be prepared for additional changes that could impact cross-border taxation.
- Consult with a Tax Professional: Given the complexity of international tax rules, U.S. taxpayers with foreign subsidiaries should consult with international tax professionals to ensure they’re in full compliance. This is particularly important now that NCTI is the focus of the tax regime, as the nuances of calculating “tested income” and the application of foreign tax credits require careful analysis.
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