Supreme Court rejects challenge of US MRT

On Thursday, the US Supreme Court rejected the challenge brought by Charles and Kathleen Moore against the taxation of unrealised profits under the 'repatriation tax' (MRT) introduced by Donald Trump in 2017.

As discussed in our December piece, the Moores sought to argue that, as the tax was on unrealised income, this did not constitute income, and therefore the 'repatriation tax' was unlawful under the 16^th Amendment principle – and as such, the MRT was unconstitutional as it was not apportioned as the taxes on property are required to be. Yet by a 7-2 vote, the justices upheld the tax and found that it was not unconstitutional.

However, clearly conscious of the potential wider significance of their ruling, the Court stressed that their judgment was limited to the taxation of shareholders of an entity, when there is undistributed income realised by an entity that has been attributed to the shareholders (and not taxed on the entity itself) – essentially when the entity is treated as a 'pass through'. Justice Brett Kavanaugh noted in his majority opinion that, in making the decision, the court had not needed to resolve the disagreement over realisation.

Ultimately, the decision wasn't quite as far-reaching as some commentators thought it might be. But with the winds of political change blowing – both in the USA and elsewhere – one suspects it won't be long before wealth taxes are brought into sharper focus once more…