Last week we discussed the need to consider the GILTI tax when valuing a U.S. corporation with global operations. The GILTI tax is even more pronounced when valuing a pass-through entity. Why? While a C corporation can generally deduct 50% of the GILTI tax – resulting in a GILTI tax of 10.5% - and can further reduce its GILTI tax through foreign tax credits, the 50% deduction against the GILTI tax is not available for pass-through entities, not to mention that pass-through entities are also not entitled to foreign tax credits.

Thus when valuing a pass-through entity with global operations, the valuation must carefully consider the effect of the GILTI tax and the specific consideration that taxpayers in a pass-through entity must pay their full individual income tax rate with no benefit from deductions or foreign tax credits. Please note that this assumes the pass-through entity does not have any corporate partners that may entitle it to the corporate benefits. Furthermore, in the context of an acquisition, a corporate purchaser of the pass-through entity could possibly benefit from the 50% deduction and be entitled to utilize foreign tax credits.