The ‘revenge tax' is dead before it even started
The Treasury Department and Congress on Thursday moved to kill a so-called revenge tax that was set to raise taxes on foreign investment and had spooked Wall Street and global business leaders.
Treasury Secretary Scott Bessent on Thursday announced a deal with G7 partners that will exclude US companies from some global taxes in exchange for the US dropping Section 899 from Republican's 'One Big Beautiful Bill Act.'
Bessent said in a post on X that he would ask Congress to remove Section 899 from the budget bill. Senator Mike Crapo and Rep. Jason Smith, who co-chair the joint committee on taxation, said in a statement Thursday that following Bessent's request, they would remove Section 899 from the bill.
Section 899 was a tax code tucked in to President Donald Trump's budget bill that would have raised taxes on the income earned from US assets held by individuals or businesses in other countries with taxes the US perceived as unfair for American businesses.
The provision would 'facilitate penalty taxes on foreign companies operating in the US if their home country is deemed to have a 'discriminatory' tax system,' analysts at Citi said in a note.
The tax code was considered a 'revenge' tax because it was designed to retaliate against a global tax framework agreed upon in 2021 by the Biden administration and the Organization for Economic Cooperation and Development, according to Mark Luscombe, principal federal tax analyst at Wolters Kluwer.
Former Treasury Secretary Janet Yellen had negotiated a tax agreement with other OECD countries that included setting a global minimum tax rate of 15%. Republicans had opposed the agreement and thought it was unfair, arguing it ceded authority on taxation, Luscombe said.
The 'revenge tax' also was set to retaliate against digital services taxes, or taxes on US tech companies that provide services to users in other countries. Digital services taxes were perceived as 'discriminatory' by the Trump administration, said James Knightley, chief international economist at ING.
Trump had previously signed an executive order on his first day in office announcing that tax deals agreed upon between the Biden administration and the OECD were null. Bessent's announcement leaves room for how the United States and other countries might negotiate on taxes.
'The Trump Administration remains vigilant against all discriminatory and extraterritorial foreign taxes applied against Americans,' Bessent said in his post on X. 'We will defend our tax sovereignty and resist efforts to create an unlevel playing field for our citizens and companies.'
The so-called revenge tax, which had stirred debates on Wall Street and law firms across the Atlantic, is moot before it even went into effect.
There had been back-and-forth debates in recent weeks about the implications of Section 899 and whether it would push global investors away from the United States.
The provision had sent shivers up Wall Street's spine as it appeared to be another protectionist policy that would penalize global investors who put their money in the United States.
'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, particularly in view of its complexity, potential scope of application and compliance obligations,' attorneys at law firm Holland & Knight said in a note. 'Those concerns have been alleviated for now.'
International business groups were in Wasington in recent weeks negotiating with lawmakers. Jonathan Samford, CEO of the Global Business Alliance, which opposed Section 899, told CNN the provision would have 'squandered opportunity and more investment' and contributed 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,' he said. 'I commend Chairman Smith and Chairman Crapo for focusing on making the United States the most competitive it can be.'
Republicans this week had begun hinting that Section 899 might be negotiable. Director of the National Economic Council Kevin Hassett said in an interview with Fox Business on Wednesday that Section 899 might not be included in the final budget bill.
'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,' Luscombe said.
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