International Tax: Basics of GILTI and Subpart F

You’re expanding globally, or maybe you already operate overseas—but then you hear terms like “GILTI” and “Subpart F,” and suddenly your tax strategy feels like a legal minefield.

Sound familiar?

You’re not alone. International tax law is notoriously complicated, and if you’re managing a U.S.-based business with foreign subsidiaries, the pressure to “get it right” can feel overwhelming. You’re expected to keep up with terms that sound like legal jargon, but failing to understand them could mean paying more tax than necessary—or worse, falling out of compliance.

Here’s the good news: understanding GILTI (Global Intangible Low-Taxed Income) and Subpart F isn’t about memorising the tax code. It’s about knowing what matters to your business, how these rules affect your bottom line, and how to stay ahead of compliance without wasting time on things that don’t apply to you.

At PAMC, we specialise in helping businesses like yours cut through the noise. We translate complex tax issues into clear, actionable strategies—so you can get on with growing your business confidently.

In this article, you’ll learn:

• What GILTI and Subpart F actually mean in plain English.
  
• Why they matter to your business (even if you think they don’t yet).
  
• What you can do to stay compliant and tax-efficient.
  

Let’s get into the basics—starting with why Controlled Foreign Corporations (CFCs) are at the centre of it all.

Understanding Controlled Foreign Corporations (CFCs)

Before you can make sense of GILTI or Subpart F, you need to get your head around one key concept: the Controlled Foreign Corporation, or CFC. This is the foundation both rules are built on.

So, what exactly is a CFC?

In plain terms, a CFC is a foreign corporation that is more than 50% owned by U.S. shareholders. But not just any U.S. shareholders—these have to be people or entities who own at least 10% of the voting power or value of the foreign company.

To break that down:

• If a group of U.S. taxpayers each owns a slice of a foreign company,
  
• And together, they own more than 50% of it,
  
• That foreign company becomes a CFC in the eyes of the IRS.
  

Once a company is classed as a CFC, it’s subject to special rules under U.S. tax law—even if it never sends a single dollar back to the U.S.

Why does this matter?

The U.S. tax system doesn’t want you stashing profits offshore in low-tax countries. So, it created rules—like Subpart F and GILTI—that let the IRS tax certain types of foreign income as if they were earned in the U.S., even if you don’t bring the money back home.

Think of it like this: just because your foreign subsidiary earns income overseas doesn’t mean it escapes U.S. tax rules. If it’s a CFC, the IRS wants a look.

What is Subpart F Income?

Subpart F is one of those tax terms that sounds more intimidating than it needs to be. But once you strip away the legalese, it’s actually pretty straightforward: Subpart F was designed to stop U.S. taxpayers from parking profits in foreign subsidiaries to delay paying U.S. tax.

How it works

Let’s say your U.S. company owns a foreign subsidiary—that foreign company is a CFC. Normally, you wouldn’t be taxed on that foreign company’s earnings until you bring the money back to the U.S.

Subpart F changes that. It says: “Hang on—we’re going to tax some of that foreign income right now, even if you don’t bring it home.”

Why? Because certain types of income are seen as too easy to shift around for tax advantages.

What kind of income does Subpart F target?

Mostly, passive or mobile income—the kind that’s easiest to move into tax-friendly jurisdictions. This includes:

• Interest
  
• Dividends
  
• Royalties
  
• Rents
  
• Certain types of insurance income
  
• Income from related-party sales or services
  

These are profits that can be earned with minimal local infrastructure—so they’re often used in tax planning strategies. Subpart F aims to neutralise that advantage.

A quick example

Say your U.S. company owns 100% of a subsidiary in Ireland. That subsidiary earns $1 million in royalty income from licensing a trademark. Under Subpart F, you may have to include that $1 million in your U.S. taxable income, even if you didn’t repatriate a cent.

It’s like the IRS saying, “We’re not waiting for you to bring this money home. You’ve earned it—we’re taxing it now.”

Don’t Let GILTI and Subpart F Catch You Off Guard

If your business operates internationally, understanding GILTI and Subpart F isn’t optional—it’s essential. These two sets of rules can significantly affect your U.S. tax bill, even if you’re not bringing foreign profits back home.

Here’s the takeaway:

• Subpart F targets specific types of passive or mobile income.
  
• GILTI casts a wider net, taxing income above a “routine return” threshold—often catching ordinary business profits in the process.
  

Both rules are designed to keep U.S. companies from shifting income to low-tax jurisdictions—and if you’re not careful, they can lead to unexpected tax liabilities.

But the good news? With the right strategy and guidance, you can stay compliant and optimise your international tax position.

At PAMC, we help businesses like yours understand how these rules apply to your structure, identify tax-saving opportunities, and build international operations that are smart, scalable, and secure.

Need clarity on how GILTI or Subpart F affects your business?
Reach out to our team today for expert, tailored advice.