U.S. Supreme Court Upholds Tax on Foreign Investments

U.S. Supreme Court Upholds Tax on Foreign Investments

U.S. Supreme Court Upholds Tax on Foreign Investments

By Boniface Ihiasota, USA

The U.S. Supreme Court has ruled on Thursday to uphold a tax on Americans who invest in certain foreign corporations, maintaining its constitutionality, Excel Magazine International can report.

The decision arrives as Democratic lawmakers continue efforts to impose a wealth tax on the nation’s super-rich.

In a 7-2 decision, the justices affirmed a lower court’s ruling against Charles and Kathleen Moore, a retired couple from Redmond, Washington.

The couple challenged the tax on earnings from foreign companies, arguing that these profits were not distributed to shareholders and should not be taxed.

Excel Magazine International recalls that the contested tax, known as the “mandatory repatriation tax” (MRT), was introduced in 2017 as part of a Republican-supported tax reform signed by then-President Donald Trump.

It targets American owners of at least 10% in foreign companies. The MRT was created to tax earnings held overseas by these corporations, whether or not the profits were paid out to shareholders.

At the heart of the dispute was whether the MRT, which taxes unrealized gains, aligns with the 16th Amendment of the U.S. Constitution.

The Moores, supported by the Competitive Enterprise Institute and other conservative groups, argued that “income” should only include realized gains, not merely increases in value.

Justice Brett Kavanaugh, writing for the majority, stated that the MRT taxes realized income generated by the corporation and attributed to shareholders. Therefore, it fits within Congress’s constitutional authority. Chief Justice John Roberts and the court’s three liberal justices concurred with this view.

Kavanaugh also noted that the court did not address whether an economic gain must be realized to be considered income, a critical point in discussions about wealth taxes.

Justice Amy Coney Barrett, joined by Justice Samuel Alito, concurred with the decision but emphasized in a separate opinion that the Constitution does not permit taxing unrealized sums without apportionment among the states.

Justices Clarence Thomas and Neil Gorsuch dissented, asserting that unrealized gains do not constitute “income” under the 16th Amendment. The ruling has significant financial implications.

The Justice Department warned that invalidating the MRT could cost the U.S. government $340 billion over the next decade and disrupt other tax provisions affecting business entities like partnerships and S-corporations.

The decision also affects ongoing political debates. Some Democratic legislators, including Senator Elizabeth Warren, have proposed taxes on the net worth of the ultra-wealthy, facing resistance in a Republican-controlled House of Representatives.

Moreover, Democratic senators had urged Justice Alito to recuse himself due to his association with one of the Moores’ attorneys, David Rivkin Jr., who has written articles defending the court. Alito defended his impartiality, claiming Rivkin acted as a journalist in this context, not as an advocate.

The Moores sought a refund of nearly $14,729 in taxes paid as minority shareholders in KisanKraft, a Bangalore-based company supplying farming equipment. The case’s outcome not only affects similar foreign investments but also resonates in broader tax policy and constitutional debates on taxing wealth and income.

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