Supreme Court upholds foreign income tax on US businesses

investmentnews.com:

The US Supreme Court upheld a 2017 tax on American-owned businesses’ foreign profits, rejecting an appeal that could have saved companies hundreds of billions of dollars.

Voting 7-2, the justices said Congress has the constitutional power to tax people and companies on their share of undistributed corporate income, at least when it comes to so-called pass-through businesses. Writing for the court, Justice Brett Kavanaugh said the disputed tax wasn’t fundamentally different from other levies imposed by Congress over the years.

The case was being closely watched because of its potential implications for Democratic proposals to impose a wealth tax. Kavanaugh said the court didn’t need to rule on that or other hypothetical taxes, casting the decision as a “narrow” one.

“Those are potential issues for another day, and we do not address or resolve any of those issues here,” Kavanaugh wrote for five justices in the majority. “Congress has long taxed shareholders of an entity on the entity’s undistributed income, and it did the same” with the 2017 tax.

The provision, known as the mandatory repatriation tax, was set up to offset other parts of a Republican-backed tax cut passed during Donald Trump’s presidency. The government has estimated that the tax would bring in $340 billion over 10 years, much of it from multinational companies like Apple Inc. and Pfizer Inc. 

A ruling striking the tax down might have required the Internal Revenue Service to refund sums companies have already paid. It also could have upended other parts of the federal tax code, including rules governing partnerships and bonds, and have spinoff effects on the states. 

The case marked a rare test of the Constitution’s 16th Amendment, ratified in 1913 to let