US Supreme Court to Hear Moore v. United States: Implications for Repatriation Tax and Beyond

The US Supreme Court is poised to hear the appeal of Moore v. the United States, a case that could potentially upend US tax policy, particularly concerning the country's repatriation tax. The case, scheduled for the upcoming term starting in October, revolves around Charles and Kathleen Moore, who argue that the repatriation tax violates the 16th Amendment of the US Constitution.

At the heart of the matter is the taxation of unrealized income. The Moores had an 11% stake in KisanKraft Machine Tools, an India-based farm equipment company. The mandatory repatriation tax, imposed at 15.5%, resulted in an additional tax liability of just $15,000 for the couple.

However, their legal team contends that this tax breaches constitutional limits, specifically the 16th Amendment, which grants Congress the power to collect taxes from realized income but not from income that remains unrealized.

While the sums involved in this case might appear modest, the implications for US tax policy could be profound. If the Supreme Court rules in favor of the Moores and deems the repatriation tax unconstitutional, it could set a precedent with far-reaching consequences. Taxpayers may become entitled to claim tax refunds for the first five years following the implementation of the Tax Cuts and Jobs Act (TCJA) in 2018. This has the potential to cost the US Treasury billions in revenue and create a significant dent in government finances.

The TCJA, enacted during the Trump administration, introduced a one-off mandatory repatriation tax of up to 15.5% on foreign earnings repatriated to the US. It represented a significant shift from the previous practice of taxing US companies repatriating profits at a 35% corporate tax rate. The case has attracted political support from conservative think tanks and lobbying groups that seek to block future taxes and establish a precedent for greater tax savings.

The Supreme Court's decision in Moore v. United States holds broader implications for US tax policy beyond the repatriation tax. It could impact the constitutionality of various tax reforms, including minimum corporate rates introduced as part of the global intangible low-taxed income (GILTI) rules. The Biden administration has already raised the minimum rate under GILTI from 10.5% to 15%. The loss of GILTI tax revenue could amount to as much as $352 billion over the next decade, according to estimates by the Tax Foundation.

Furthermore, the case's outcome may affect the Biden administration's commitment to international tax reform, particularly the implementation of the two-pillar solution. Pillar two involves a 15% global minimum corporate tax rate with an income inclusion rule (IIR). The IIR may face constitutional challenges if the Moores prevail in their case.

In summary, while the Moore case may involve relatively small sums in dispute, its implications for US tax policy and international tax reform are substantial. The Supreme Court's ruling, whether narrow or broad, will likely shape the landscape of US taxation for years to come, with potential consequences for both domestic and global tax policies. By fLEXI tEAM