When the 2017 Tax Cuts and Jobs Act (TCJA) became law, a new international corporate tax system went into effect, replacing a tax system that dated back to 1962. Under the old system, businesses could defer US tax on foreign earnings if they did not “repatriate” those earnings by bringing the money back to the US. Under the TCJA, this was no longer possible. Instead, businesses would be taxed on foreign earnings each year, even if they left the money offshore.
The purpose of the one-time Repatriation Tax was to “reset” from the old system to the new system. The Repatriation Tax would make sure companies paid US tax on all of the foreign earnings they had accumulated offshore over the years. Then, going forward, they would pay US tax each year on any new foreign earnings.
To ease the impact of companies having to pay tax on all prior-year offshore earnings at once, the Repatriation Tax offered a special low tax rate on these accumulated earnings.