What Is Repatriation? Under U.S. tax law, a company that earns a profit overseas must, in general, pay income tax to the overseas government AND to the IRS if they bring the remaining profit back to the U.S. The company gets a credit for the foreign income tax paid, but the difference between the foreign tax and the U.S. 35 percent rate must be paid to the IRS. In practice, deferrals and other tax rules allow companies to keep foreign after-tax earnings locked overseas, but that money generally remains unavailable to be used in the United States.
This is known as a "worldwide" tax system. All conservatives agree that we should move toward a "territorial" tax system, which most of the developed world already uses. Under a territorial system, the IRS would only seek to tax those profits earned in the United States. U.S. companies with foreign-source profits would be free to leave those profits overseas or bring them home without any further tax consequences. Repatriation is a way of having a territorial tax treatment of overseas income that has already faced foreign income taxation.
Has the U.S. ever tried repatriation before? The U.S. tried repatriation recently. In 2005, companies were allowed to bring back foreign source profits at a tax discount. Rather than having to pay the difference between the foreign tax rate and the U.S. tax rate of 35 percent (tied for highest in the developed world), the companies instead could pay a de facto repatriation tax rate of 5.25% to the IRS--a bargain in most cases. Over $300 billion was repatriated that year under this arrangement. Given the relative size of overseas profits accumulated today, it's reasonable that this number could be twice as high this time.