The name that Republican tax writers gave to a new, multibillion-dollar business levy implies that it targets foreign earnings from "intangible" intellectual property — hitting tech firms and drugmakers like Apple Inc. and Pfizer Inc.
But experts agree that the little-understood "global intangible low-taxed income" levy will also apply to earnings that go far beyond patents, royalties and licensing, and could end up snaring many global firms that earn little such income. Private equity partnerships that aren't publicly traded — including Bain Capital LP, TPG Holdings LP and Warburg Pincus LLC — stand to pay rates three times as high as corporate competitors, tax lawyers say. Law and advertising firms with overseas offices may also be hit — as will many U.S. companies that make "excess" profit from foreign plants, equipment and inventory.
The name is "Orwellian," said James Duncan, a tax partner at the law firm Cleary Gottlieb Steen & Hamilton LLP, in a Dec. 20 webcast. "Its most significant effect is on income that is neither intangible nor low-taxed."
GILTI has been commonly viewed as a minimum tax on foreign earnings from intangible property, one that's meant to prod American technology and pharmaceutical companies into holding their valuable intellectual properties in the U.S. Currently, many hold their patents in subsidiaries in Ireland or other low-tax countries.
Yet the tax "doesn't attempt to actually characterize income as tangible or intangible," said David Miller, an attorney with Proskauer Rose LLP. It'll apply to both, Mr. Miller and others said.