Caught In The Tax Net

For corporate treasury departments across America, the Moore v. United States decision arrived like a cold splash of water.

In June, the U.S. Supreme Court upheld the constitutionality of the mandatory repatriation tax (MRT), a contentious provision from the 2017 Tax Cuts and Jobs Act (TCJA).

The MRT imposes a one-time tax on accumulated, undistributed income from foreign corporations controlled by U.S. shareholders—even if those profits remain untouched in overseas accounts. This ruling confirms the government’s authority to treat this retained income as taxable for American shareholders, potentially reshaping corporate treasury strategies.

Since the TCJA’s passage, the MRT has levied a tax on these accumulated profits at rates of 15.5% for cash or cash-equivalent assets and 8% for other assets, affecting U.S. shareholders with at least a 10% ownership in foreign corporations. The law was intended to discourage indefinite retention of earnings offshore.

In Moore v. United States, the plaintiffs argued that taxing their pro-rata share of the foreign corporation’s undistributed income amounted to taxing unrealized income—a practice they claimed was unconstitutional. However, the Supreme Court held that the MRT constitutes a legitimate income tax since it attributes the income of controlled foreign entities to American shareholders, following long-standing precedent in subpart F and S-corporation tax cases​

A Win for the Taxman

In upholding the MRT, the Court concluded that Congress’s approach aligns with constitutional taxing authority. Treasury departments now face the reality that withholding foreign profits offshore no longer shelters them from U.S. tax obligations.

For many multinationals, this means weighing whether to continue holding cash abroad or to bring it back for domestic use, potentially funding dividends, buybacks, or new investments, with a clearer understanding of tax consequences.

Repatriate, or Reconsider?

In light of the ruling, outright repatriation through dividends isn’t the only option, though it has become more appealing.

Treasury teams might consider alternatives such as intercompany loans, royalties, or licensing fees, which provide liquidity across borders while potentially reducing tax exposure.

Yet, these alternatives require meticulous adherence to transfer pricing and regulatory compliance standards to withstand scrutiny from tax authorities.

A Treasury Playbook for the Post-Moore World

For the canny treasury manager, the immediate task is to assess how Moore reshapes the tax and cash flow landscape. First, this means recalibrating financial models to anticipate the ongoing costs of holding cash abroad. While the tax is already assessed on accumulated foreign profits, forecasting future tax burdens will help companies better plan their liquidity needs.

Second, foreign exchange (FX) risk management becomes an even higher priority. As companies contemplate repatriation, they must also grapple with volatile currency markets. Bringing cash back in a strong dollar environment can diminish foreign profits, but waiting for favorable conditions introduces risks of its own. Hedging options—forward contracts, options, and currency swaps—can soften these blows, although such strategies require a deft hand and a good dose of market foresight.

Finally, treasury teams will need to pay close attention to compliance, not only with American tax law but with an increasingly complex international tax environment. Recent moves by the OECD toward a global minimum tax, coupled with stricter reporting standards, mean that corporations can expect growing pressure to maintain transparency and defend their transfer pricing practices under a finer microscope.

No Easy Way Out

The Supreme Court’s ruling in Moore is more than a tax decision but a signal to corporate America that holding foreign cash comes with a price. Treasury departments that once viewed foreign profits as a tax-deferred asset will need to rethink their strategies, balancing repatriation with compliant, tax-efficient cash flows.

With tax law in flux and currency markets shifting, the prudent treasury manager will do well to adopt a flexible, forward-thinking approach to cash management.