GILTI and Subpart F in 2026: Managing CFCs for Latin American Fortunes

It is 2026. A decade after the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), the discussion surrounding the Global Intangible Low-Taxed Income (GILTI) and Subpart F regimes for Latin American fortunes with U.S. beneficiaries has dramatically shifted. It is no longer about understanding their existence, but about the permanent strategic management of their impact on wealth. The planning decisions we observe today revolve around optimizing existing exceptions, managing an increasing compliance burden, and fundamentally reassessing family structures' exposure to the U.S.

The interplay between Subpart F, which since the 1960s has addressed passive and artificially shifted income, and GILTI, a more recent dragnet taxing most active operating income of a Controlled Foreign Corporation (CFC) not taxed at a sufficiently high local rate, remains a focal point of complexity. Our analysis in 2026 centers on proactive planning to segregate income streams and prevent double inclusion. The key lies in distinguishing between Subpart F income and "tested income" for GILTI. Although Subpart F income is taxed at ordinary rates, it is excluded from the GILTI base. This nuance allows our advisors to structure operations that bypass the more onerous GILTI calculation.

Planning has become increasingly sophisticated, requiring a detailed analysis of each income stream within the family's operating and holding corporations across Latin America. For instance, in a manufacturing company in Colombia or a service business in Brazil, discerning whether income originates from sales, services, royalties, or rental real estate is critical. This categorization determines if the income falls under Subpart F or GILTI, with drastically different tax outcomes for the U.S. shareholder. This level of granularity demands accounting and data tracking that far exceed the standard practices of many family businesses in the region. The result is a significant administrative and cost burden, now considered in 2026 an unavoidable cost of doing business.

The High-Tax Exception (HTE): Anchor of Current Planning

At the core of post-TCJA strategic planning is the High-Tax Exception (HTE) under Internal Revenue Code (IRC) Section 951A. Final regulations issued by the U.S. Treasury, notably those from 2020, solidified the rules allowing a U.S. shareholder to exclude from their GILTI computation the income of a CFC that has already been taxed abroad at an effective rate greater than 90% of the U.S. corporate rate. This annually means an 18.9% exclusion threshold, given the 21% U.S. rate. In 2026, applying this exception is the primary objective for most structures we advise.

However, reaching this threshold is not straightforward. The effective tax rate is calculated under U.S. tax rules, not local ones, necessitating complex adjustments for differences in depreciation, income recognition, and deductions. This has spawned a tax modeling industry where advisors must annually recalculate Earnings and Profits (E&P) and attributable foreign taxes under U.S. principles. A key challenge is the volatility of exchange rates and tax reforms in Latin American jurisdictions. A structure that qualified for the HTE in one year might fail in the next.

The HTE election is annual and can be made on a CFC-by-CFC basis or for a group of CFCs controlled by the same U.S. shareholder. This flexibility, while a valuable planning tool, adds another layer of analysis and forecasting. For a family with operations in multiple Latin American countries with differing tax profiles, for example, a low-tax operation in Panama and a high-tax one in Argentina, the decision of whether or not to group CFCs to average tax rates can have a multi-million dollar impact. In 2026, the most sophisticated family offices execute detailed simulations before each fiscal year-end to make this decision.

Corporate and Wealth Structuring in the GILTI Era

The impact of GILTI and Subpart F extends beyond the annual tax return. It is redefining how Latin American families structure their businesses and plan for intergenerational succession. The presence of a single U.S. shareholder, whether a child who acquired citizenship by birth, a spouse with a green card, or a trust beneficiary, can subject the family's entire global operating structure to these complex reporting and tax rules.

One direct consequence is the renewed importance of entity classification elections, known as 'check-the-box' elections. The decision to treat a Panamanian corporation or a Colombian SAS as a corporation or as a pass-through entity for U.S. tax purposes is crucial. Treating an operating CFC as a pass-through entity can, in some cases, eliminate the application of GILTI and Subpart F. However, this entails the U.S. shareholder being taxed directly on the company's operating income, which might not be optimal and creates other complexities with foreign tax credits.

Regulatory pressure also influences investment decisions. The GILTI formula allows for a deduction based on a 10% return on Qualified Business Asset Investment (QBAI), which essentially refers to tangible assets. This provision, designed to incentivize investment in physical assets abroad, is actively utilized. In 2026, we observe some structures prioritizing the acquisition of capital goods, machinery, or real estate within their Latin American CFCs to increase their QBAI base, thereby reducing the GILTI inclusion. This, in turn, raises questions about whether U.S. tax policy is subtly distorting capital allocation decisions within family business groups in the region.

Finally, the ongoing complexity and cost of compliance have led some families to consider a more drastic option: exit planning. Expatriation, meaning the renunciation of U.S. citizenship or the surrender of a green card, has become a strategic alternative seriously modeled and discussed in wealth planning circles. Although it carries its own exit tax and significant personal considerations, for some families with vast operating holdings outside the U.S., the long-term cost of maintaining U.S. person status is becoming prohibitive. This underscores how GILTI and Subpart F have evolved from being a technical tax problem to a fundamental factor shaping the life decisions and identity of globally connected families.