Multinational corporations with profits held overseas would face a mandatory one-time tax as part of the planned Republican tax legislation, Treasury Secretary Steven Mnuchin said Wednesday.
"There will be a 'deemed tax' as a one-time charge," Mnuchin said in an interview with Fox News at the Treasury.
U.S. companies have an estimated $2.6 trillion in foreign earnings that have not been returned to the country for taxation, according to Congress' Joint Committee on Taxation.
Some of those profits have been reinvested in overseas operations. But executives have strategically kept funds out of the country to avoid the unusual U.S. corporate tax on all worldwide earnings, subject to the 35 percent corporate tax, the highest among advanced economies.
Allowing those funds to return to the U.S. is a major motivation for tax reform. President Trump has suggested, without providing evidence, that the total funds held overseas might be as much as $5 trillion.
As the unrepatriated earnings have steadily grown over the years, Congress has mulled different options for bringing them back and taxing them.
Mnuchin's suggestion Wednesday was that, as part of tax reform, all such unrepatriated earnings would be taxed as if they were brought back, whether they were or not.
That policy, known as "deemed repatriation" to tax experts, would generally meet opposition from businesses if it were not part of a larger tax reform. As part of the reform package, businesses likely would get a special low rate, most likely in the single digits, for profits brought back from overseas. The tax code overhaul likely would reduce the corporate tax rate in the future and apply it only to profits earned domestically.
Such a deemed repatriation likely would raise hundreds of billions of dollars in taxes, depending on how it was structured.
In the past, Democrats have been open to a deal in which those new revenues were directed to infrastructure projects. Republicans working on the tax plan are open to such a suggestion but haven't settled on a decision about it. Whether to include infrastructure spending might rest on whether it would secure Democratic votes.
"We'll leave it to Congress if they want to add infrastructure to this," Mnuchin said.