On June 20, 2024, the U.S. Supreme Court announced it had upheld the constitutionality of the Mandatory Repatriation Tax (MRT)—also known as the Section 965 Transition Tax—under the 2017 Tax Cuts and Jobs Act (TCJA). The MRT was a keystone part of the TCJA, transitioning the old indefinite deferral regime to the new foreign income inclusion regime. The MRT required U.S. taxpayers to include in their income earnings of certain foreign corporations. The U.S. Supreme Court’s ruling in this case allowed attribution of an entity’s realized but undistributed income to its U.S. shareholders and then tax them on that income.
The MRT required U.S. taxpayers who owned at least 10 percent of a controlled foreign corporation (CFC) to pay a one-time tax on their share of the corporation’s accumulated earnings and profits, regardless of whether such income was distributed to them. Prior to the TCJA, companies could indefinitely defer including its foreign earnings in their U.S. income by parking the profits offshore. After the MRT, as a part of the TCJA, U.S. taxpayers must include in their income their share of global intangible low-tax income (GILTI) unless an exception or reduction applies.
The ruling was based on Moore v. United States, which focused on a tax provision in the TCJA that reduced the corporate tax rate and included a one-time tax on earnings of U.S. shareholders.
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