The Treasury Department and Congress have taken decisive steps to eliminate a controversial tax provision known as the “revenge tax,” which was poised to increase taxes on foreign investments and had raised alarms among Wall Street and international business leaders. The move was announced on Thursday, following a deal struck by Treasury Secretary Scott Bessent with G7 partners to exempt U.S. companies from certain global taxes in return for dropping Section 899 from the Republican-backed “One Big Beautiful Bill Act.”
In a post on X, Bessent revealed his intention to urge Congress to remove Section 899 from the budget bill. This was swiftly followed by a statement from Senator Mike Crapo and Representative Jason Smith, co-chairs of the joint committee on taxation, confirming their agreement to eliminate Section 899 at Bessent’s request.
Understanding Section 899
Section 899 was a contentious tax provision embedded within President Donald Trump’s budget bill. It aimed to increase taxes on income derived from U.S. assets held by individuals or businesses in countries with tax systems deemed unfair to American enterprises. The provision was designed to impose penalty taxes on foreign companies operating in the U.S. if their home countries were perceived to have “discriminatory” tax systems, according to analysts at Citi.
Described as a “revenge” tax, it was intended as a countermeasure against a global tax framework established in 2021 by the Biden administration and the Organization for Economic Cooperation and Development (OECD). This framework included a global minimum tax rate of 15%, which Republicans argued compromised U.S. tax sovereignty, as noted by Mark Luscombe, principal federal tax analyst at Wolters Kluwer.
The Global Tax Landscape
The “revenge tax” was also seen as a retaliatory measure against digital services taxes imposed on U.S. tech companies providing services internationally. These taxes were labeled “discriminatory” by the Trump administration, according to James Knightley, chief international economist at ING.
Former Treasury Secretary Janet Yellen had successfully negotiated a tax agreement with OECD countries, which Republicans opposed, viewing it as an unfair concession of taxation authority. The Trump administration had previously nullified these agreements through an executive order on Trump’s first day in office, signaling a hardline stance on protecting U.S. tax interests.
“The Trump Administration remains vigilant against all discriminatory and extraterritorial foreign taxes applied against Americans,” Bessent stated on X. “We will defend our tax sovereignty and resist efforts to create an unlevel playing field for our citizens and companies.”
Wall Street’s Relief and International Reactions
The announcement to scrap the “revenge tax” has been met with relief on Wall Street and among international business groups. The provision had sparked intense debate, with concerns about its potential to deter global investors from the U.S. due to its perceived protectionist nature.
Law firm Holland & Knight noted the significant anxiety among investors regarding Section 899’s complexity and compliance obligations. “Great concern had been expressed by Wall Street and affected stakeholders about the enactment of Section 899 and its impact on foreign investment in the United States,” the firm stated. “Those concerns have been alleviated for now.”
International business leaders had been actively negotiating with lawmakers in Washington. Jonathan Samford, CEO of the Global Business Alliance, expressed satisfaction with the decision to abandon Section 899, stating it would have “squandered opportunity and more investment” and led to “further isolation.”
“We’re very pleased that President Trump and the administration have pursued this negotiation, and as a result, called for withdrawal of this punitive and discriminatory provision,” Samford told CNN. “I commend Chairman Smith and Chairman Crapo for focusing on making the United States the most competitive it can be.”
Looking Ahead
Republicans had recently hinted at the negotiability of Section 899. Kevin Hassett, Director of the National Economic Council, suggested in a Fox Business interview that it might not be included in the final budget bill. The decision to abandon the “revenge tax” opens the door for potential future negotiations on international tax policies.
As Mark Luscombe pointed out, “You can try to retaliate, but it’s probably better to work out an agreement than just have a tax fight, just like we’re having tariff fights.”
This development represents a significant shift in U.S. tax policy, with implications for both domestic and international economic relations. The resolution of the “revenge tax” issue may pave the way for more collaborative approaches to global taxation challenges in the future.
