Luther Industries,a U.S.firm,has foreign assets valued at $120 million and foreign earnings before interest and taxes of $50 million.It pays a foreign tax at the rate of 5%.What is Luther's global intangible low tax income (GILTI)?

Question

Quizplus · Accepted Answer

GILTI is the excess of a U.S. shareholder's net tested income over a deemed return on tangible assets located in foreign jurisdictions. 
Net tested income for Luther Industries = (foreign earnings before interest and taxes) - (foreign tax paid) = $50 million - ($120 million x 5%) = $44 million 
Deemed return on tangible assets = 10% x $120 million = $12 million 
Therefore, Luther's GILTI = $44 million - $12 million = $32 million 
However, the minimum tax on GILTI is calculated as (GILTI - 10% x QBAI), where QBAI (qualified business asset investment) is the average aggregate adjusted bases of the tangible assets used in the production of the GILTI. 
Assuming that Luther has $110 million of QBAI, the minimum tax on GILTI would be 10% x $110 million = $11 million. 
Therefore, Luther's actual GILTI would be the higher of ($32 million) or ($11 million + 10% x $110 million) = $37.4 million.