Repatriation: Definition, With Currency Exchange and Example

What Is Repatriation?

Repatriation refers to the return of people, money, or objects of cultural heritage to their country or culture of origin. 

In finance, the term repatriation refers to the conversion or exchange of foreign currency into someone's home currency. In most cases, it involves moving money back after someone returns home after living or working abroad, though repatriation is also a common occurrence in other areas of the financial sector, such as business transactions, foreign investments, or international travel. The act of repatriating currency can result in losses and certain risks, including foreign exchange risks.

The word covers a large array of “returns” outside of finance as well. In reference to people, the term can refer to the return of refugees, forced or voluntary, as well as the expulsion or return of diplomats or the resettlement of citizens. In recent decades, increasing attention has been paid to repatriation of cultural goods, especially ones that were looted as a result of colonialism or that were pillaged during war. Goods of significant cultural value enjoy some protections under international law, and numerous court cases have arisen seeking the return of looted property.

Understanding Repatriation

Repatriation can fall along several categories, including people, finances, or objects of significant cultural value. The reasons for repatriation vary as much as the kinds of repatriation.

People

Repatriation is a process that occurs when people return to their home country after living, visiting, or working abroad.

In the most benign case, this can refer to people returning home after working abroad. For instance, someone from Canada may take a contract job in the United Kingdom for two years. When their contract is up, they may decide to return home, in which case the act of returning home is known as repatriation. In other cases, repatriation can involve the return of refugees, such as what was called for in an agreement between Myanmar and Bangladesh which was supposed to lead to the 2018 return of Rohingya migrants to the Rakhine State.

When a repatriation is done willingly it is referred to as "voluntary repatriation," which typically involves a commitment from the country of origin to help reintegrate the repatriated people. Countries may offer assistance for this. The U.S. Repatriation Program, for instance, exists to offer assistance to those who don't have the resources to return to the U.S. for a number of reasons, including war, mental illness, or poverty. These returns, however, can be done with force, such as in the Depression-era removal of Mexican-Americans in the United States. In that forced repatriation, about 1 million Mexican nationals and American citizens of Mexican descent from throughout the United States—of which perhaps 60% were U.S. citizens—were mass deported out of the country, according to an estimate from Professor of American history and Chicano studies at California State University, Los Angeles, Francisco Balderrama.

Cultural Property

Under international law, cultural property—defined as movable or immovable property constituting the "cultural heritage of all mankind"—is protected from pillaging or looting, especially during conflict.

Ultimately, the protections exist to preserve cultural heritage and to keep it from being dismantled or defaced by war or theft, and the legal framework became increasingly codified in response to the Second World War, particularly with the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict, which was later expanded. Related to that idea is that each peoples have contributed in their own way to the common heritage and therefore have some meaningful claim over cultural goods of value that is independent of national jurisdiction or property rights, although national interest also plays a large role in conversations about cultural heritage.

The protections are meant to dissuade acts like the destruction of the Bamiyan Buddhas by the Taliban in Afghanistan, which was called a "crime against culture" by UNESCO in 2001.

In western countries, repatriation of native cultural heritage has become integrated into law. That is a relatively recent development in some places. In the United States, for example, no consistent national policy existed for the repatriation of Native American remains and sacred objects until the 1990s, according to a historical note about the political implications of archeology.

Financial Repatriation

Repatriation in finance commonly refers to the conversion of offshore capital back to the home currency of a corporation. In the global economy, many corporations based in the United States generate earnings abroad. There are legal steps corporations take to repatriate their currency, including:

• Share repurchasing
• Loans
• Dividend programs
• Repayment of capital
  

Individuals might also repatriate funds. For example, Americans returning from a visit to Japan typically repatriate their currency, converting any remaining yen into U.S. dollars. The number of dollars they receive when they exchange their remaining yen will depend on the exchange rate between the two currencies at the time of the repatriation.

Special Considerations for Financial Repatriation

American taxpayers, including individuals and corporations, have historically been taxed on any income they earned abroad. This includes any foreign income earned and repatriated. For example, U.S. corporations were taxed for dividends issued by a foreign subsidiary. Tax rates for repatriated currency were as high as 35%.

This changed following the signing of the Tax Cuts and Jobs Act (TCJA) by President Donald Trump in late 2017. Once signed, the law cut the corporate repatriation tax, which is referred to as a transition tax, from that rate of 35%. It allowed U.S. companies to repatriate money earned overseas at 15.5% for any foreign earnings held in cash and cash equivalents and 8% for any foreign income that doesn't fall in this category.

These changes could bring in as much as $340 billion between 2018 and 2027 in tax revenue. U.S. corporations repatriated $777 billion of cash stored overseas in 2018, according to the Federal Reserve.

Repatriation Risks for Financial Repatriation

Companies that operate in more than one country generally accept the local currency of the economy that they transact business. When a company earns income in foreign currencies, the earnings are subject to foreign exchange risk, meaning they could potentially lose or gain in value based on fluctuations in the value of either currency.

For example, though Apple (AAPL) is a U.S.-based corporation, an Apple store in France accepts euros as payment for product sales since the euro is the currency used in France. If Apple earned one million euros from product sales in France at an exchange rate of 1.15 dollars per euro, the earnings would equal $1.15 million or (one million euros x 1.15). But if it earned one million euros during the next quarter and the exchange fell to 1.10 dollars per euro, the earnings would equal $1.1 million or (1.1 million euros x 1.10).

In other words, Apple would lose $50,000 in earnings based on the exchange rate decline despite having the same amount in sales in euros for both quarters. The volatility or fluctuations in the exchange rate is called foreign exchange risk, which companies are exposed to when they do business internationally. As a result, the volatility in exchange rates can impact a company's earnings.

Example of Financial Repatriation

At the time that the TCJA was passed, Apple had the largest amount of cash holdings abroad of any U.S. company. Following the changes made to the U.S. tax laws with the passing of the act, the company said it was bringing home roughly all of the $250 billion held overseas. As a result, Apple agreed to a one-time tax payment to the Internal Revenue Service (IRS) of $38 billion to repatriate its foreign cash holdings.