Capping off a big week for U.S. tax reform, Treasury Secretary Scott Bessent has requested that Section 899 be removed from the One Big Beautiful Bill Act.
On X, Bessent said he had concluded discussions with other countries on the OECD Global Tax Deal and that the members of the G7 will shortly release a memo of understanding that explicitly defends American overseas tax interests, a deal he believes will preserve tax sovereignty for the country.
Following the request, officials, including Senator and Finance Committee Chairman Mike Crapo, indicated that the Senate will look to remove the part of the Act being referred to as a “revenge tax.” Alongside fellow chair, House representative Jason Smith, Crapo said the upcoming OECD agreement means that “a joint understanding with the G7 means the U.S. can reclaim tens of billions of dollars that had been ceded from our tax base by Democrats’ America-Last policy.”
The Act passed the House on May 22 and the Senate version was presented this week. The original version of Section 899 was heavily criticized for the impact that it would have on foreign investment, with the proposal specifically designed to punish certain countries whose tax policies the U.S. government considers unfair. The proposal is also forcing asset managers to rethink their strategies.
It has been widely reported that Section 899 has been proposed as a direct response to the OECD’s Pillar 2 tax regime, which seeks to impose a minimum global tax rate of 15 percent.
Institutional Investor reported earlier this month that taxing foreign investors for entering U.S. markets is bad for both U.S. and international asset managers. Ben Huneke, head of Morgan Stanley Investment Management, said: “While the Section 899 provision in the reconciliation bill is written in the spirit of protecting U.S. business interests overseas, it could have the unintended consequence of a retreat by foreign investors from U.S. markets that have historically benefited from significant net capital inflows.”
The Senate version of the draft made slight amendments to the proposal that sought to change Section 899 of the Internal Revenue Code, “Enforcement of Remedies Against Unfair Foreign Taxes.” Changes included an exception from any tax increases for “portfolio interest” and a cap on addiction tax at 15 percent, as opposed to the 20 percent passed by the House. The Senate also would have delayed the application of the measures by an additional year, to Jan 1, 2027 from the start of 2026.
But given Bessent’s request and the announcement of a pending deal with G7 members, it appears that neither version of the much maligned proposal will see the light of day.
