How a Legal Fight Over a $15,000 Tax Bill Could Upend the U.S. Tax Code

https://www.nytimes.com/2023/12/05/us/politics/supreme-court-corporate-taxes-explainer.html

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Speaking to business leaders at a 2018 dinner at his New Jersey golf club, former President Donald J. Trump hailed the achievement of his recently enacted tax cuts, highlighting a provision that he said would reel in trillions of dollars that American companies had been holding overseas.

“We expect to have in excess of $4 trillion brought back very shortly,” Mr. Trump said. “This is money that would never, ever be seen again by the workers and the people of our country.”

Mr. Trump was referring to measures in the 2017 Tax Cuts and Jobs Act that overhauled how the United States taxed corporate profits that were earned abroad. Those provisions dramatically reduced the incentives that big companies had to keep their cash parked overseas in hopes that those funds would be reinvested at home.

Mr. Trump did not mention that along with that lower tax on foreign earnings, known as the global intangible low-taxed income — or the acronym GILTI — came a one-time levy on three decades’ worth of foreign corporate earnings that would be “repatriated.” Five years later, that tax is the subject of a case being heard before the Supreme Court on Tuesday that has implications for the entire U.S. tax code.

Before the 2017 tax law was enacted, American companies paid taxes on their worldwide profits at a rate of 35 percent. But they were able to indefinitely defer taxes on profits they earned abroad as long as that money stayed overseas.

If a company wanted to bring that money back into the United States, it would have to pay the 35 percent corporate tax rate minus whatever it had already paid abroad. The potential for a big tax hit encouraged multinational companies to stash their profits in low-tax jurisdictions likes Bermuda, Ireland and the Netherlands.