Latest news with #revengetax
Telegraph
3 hours ago
- Business
- Telegraph
How Trump's ‘revenge tax' brought the world to its knees
When Donald Trump unveiled his 'One Big Beautiful Bill' last month, all the focus was on how the president's trillions of tax cuts might blow out America's budget bottom line. But hidden within the bill's 1,000-plus pages was a clause that set alarm bells ringing in boardrooms at many of Britain's biggest companies. In section 899 of the bill, Trump proposed what has become known as a 'revenge tax', which gave him a new power to punish countries that had tax regimes he didn't like. If Britain's taxes displeased him – and they do – he could ratchet up US taxes on British companies' American operations to blood-curdling levels. Every year, British companies would face an extra 5pc tax hit on earnings from their US operations, with the rate maxing out at 50pc. The threat was a devastating one. British companies with big US exposure include the food giant Compass, the big pharma pair GSK and AstraZeneca, Barclays, British American Tobacco, drinks conglomerate Diageo, goods manufacturer Reckitt Benckiser and Intercontinental Hotels Group. All are listed on the London Stock Exchange, meaning Trump's threat could have been devastating for the already beleaguered index. The response was immediate. Business leaders and lobby groups quickly began knocking on Rachel Reeves's door, sounding the alarm and urging the Chancellor to get on the case with Scott Bessent, the US treasury secretary. Reeves got the message. She raised the S899 tax threat with Bessent when he came to London for trade talks with the Chinese in early June. By then, though, the bill was breezing through the House of Representatives and into the Senate, with the only change being a tweak to ensure investors in US Treasury bonds weren't affected by the 'revenge tax'. Businesses began weighing up Plan B. All the options for coping with the revenge tax were expensive and disruptive, ranging from pulling money out of the US to beat the higher rate to scaling back US investments, or dual-listing their stock in New York. Some even considered the nuclear option of spinning off their American businesses altogether. Fearing Trump's wrath The public debate on S899 hasn't matched the anxiety behind closed doors. Companies were reluctant to speak out, fearing Trump's wrath. But the clock was ticking. Trump wants his Big Beautiful Bill to become law by July 4. With less than a week to go, there was still no public sign that his team, or the Republicans in Congress, were ready to compromise. On Thursday night, though, the tax bloodbath was averted. Bessent announced that he'd extracted surrender terms from the finance ministers of the G7 – Britain, France, Germany, Italy, Japan and Canada – and told Congress to drop section 899. 'It's a big relief,' says Emanuel Adam, a Washington-based executive director at the lobby group British American Business. CS Venkatakrishnan, the Barclays chief, called it 'welcome progress, and a significant outcome for a great many UK companies like Barclays that invest in the US'. But a deal with Trump always comes at a price. The main target of s899 was efforts to impose a global minimum corporation tax, part of a OECD-led initiative, and in particular the Under-Taxed Profits Rule (UTPR). This aims to ensure that multinational companies always pay a tax rate of at least 15pc on their earnings, rather than being able to shelter profits in lower-tax countries. Bessent says the G7 will now not impose that levy on US businesses. The risk now, observers say, is that an American exemption to the UTPR could start to unravel that whole process, sending the world back into the rabbit warren of widespread tax avoidance. 'The biggest success has been to get a load of low-tax or no-tax countries, like the Gulf states and most of the island tax havens, to up their company tax rate to 15pc,' says Tim Sarson, the head of tax policy at KPMG UK. 'If they think they can reduce that rate and attract US companies to their jurisdiction, that might start to unpick the new system more widely.' Digital services taxes, which were one of Trump's explicit targets of s899, are still on the table. The president sees these as unfair imposts on American tech giants, but The Telegraph understands these will be fought over as part of his trade negotiations with individual countries, rather than as part of this deal. Closer to home, there's the question of whether the s899 deal will deliver yet another blow to Reeves's already shattered Budget. The Office for Budget Responsibility has estimated that the OECD 'Pillar Two' deal, which includes the global minimum tax rate and the UTPR, would deliver £1.3bn of extra revenue this financial year and next, climbing to £1.5bn by 2029-30. Most of this, though, would come from a different part of Pillar Two, which targets UK companies with subsidiaries in offshore tax havens, rather than US businesses. Tax experts say revenue from the UTPR, which the UK would collect from foreign companies, would be difficult to model and likely have only a small impact on the OBR's forecast. Price worth paying Even if there is a hit to Britain's tax take, it may have been a price worth paying to shield Britain's corporate A-list from Trump's brutal tax. With many blue chip companies reporting their annual or half-yearly results next month, boards were preparing and planning for the inevitable questions from alarmed shareholders. Many were evaluating what could be done to minimise the impact in the short term, in the hope that the political weather in the US might change after the Congressional midterm elections next year and the presidential election in 2028. 'I don't think companies would have retracted their investments or stalled major plans, but it would create additional friction. Projects might have taken longer,' British American Business's Adam says. 'Companies are agile, and companies know how to adjust. But this would have consumed resources and money that could be spent on other things.' Damage to confidence Although the immediate crisis seems to have passed, the Trump administration may have inflicted some lingering damage on the confidence that UK companies and investors have in the US as a place to do business. It just doesn't look quite like the safe, secure and stable proposition it used to be. Joe Dabrowski, of the Pensions and Lifetime Savings Association, says that when you add the s899 scare to the tariff threats, Trump's fight with Jerome Powell, the Federal Reserve chairman, and his radical surgery on corporate governance, the sum total is much greater uncertainty. 'It all creates an environment where investors just have to tread more carefully. There is a lot more thinking and due diligence and risk you have to factor in,' he says. 'Some of it might just be white noise and political posturing, but at times it's very difficult to tell the difference between that and reality.' And although Reeves probably had little choice but to yield to Trump, the G7's readiness to give way has probably only increased that risk. 'There's the fear, which I'm sure UK Treasury has as well, that if you give the Americans this, then the next time they're unhappy about something, they'll try the same trick,' says KPMG's Sarson. With the mercurial Trump barely started on his four-year term, British businesses should probably just put those contingency plans in a drawer, rather than feed them to the shredder.
Yahoo
14 hours ago
- Business
- Yahoo
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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNN
16 hours ago
- Business
- CNN
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.
Bloomberg
a day ago
- Business
- Bloomberg
‘Revenge Tax' Shift Revives US Appeal for Australia Mega Funds
Australia's A$4.1 trillion ($2.7 trillion) pension industry signaled relief over US plans to scrap the so-called 'revenge tax,' which would have increased levies on income from assets of foreign investors. The proposal to lift taxes on US income of non-US businesses could have had a far-reaching impact on Australian pension funds, which have about $450 billion invested in the world's largest economy across infrastructure, equities, bonds, and other assets, according to industry data.
Yahoo
a day ago
- Business
- Yahoo
Trump wins tax breaks for US with threat of ‘revenge' raid on foreign business
Donald Trump has extracted tax breaks for US companies after threatening to impose a 'revenge' levy on foreign businesses that moved money out of the US. G7 countries are to abandon plans to make US companies pay a minimum level of corporation tax in return for Mr Trump dropping the threat of 'revenge tax'. Scott Bessent, the US Treasury secretary, said that he has asked both houses of the US Congress to remove a Trump's tax proposal, known as Section 899, from the budget bill after an agreement with the other G7 countries. Section 899 is part of Mr Trump's 'big, beautiful' tax and spend bill, and would have enabled the US president to retaliate against countries that harm American interests with 'discriminatory' tax policies by taxing any money taken out of the country. The power threatened to be hugely costly to British businesses. Some of Britain's biggest companies, including AstraZeneca, BAE and Barclays, have significant operations in the US that could be at risk of being targeted. Fears had mounted that the powers could be used on the UK as a way of forcing Sir Keir Starmer to water down or abolish Britain's digital service tax, which applies to US tech giants. On Thursday night, Mr Bessent wrote on X: 'After months of productive dialogue with other countries on the OECD Global Tax Deal, we will announce a joint understanding among G7 countries that defends American interests. 'President Trump paved the way for this historic achievement. On January 20, the President issued two executive orders instructing [the US] Treasury to defend US tax sovereignty, and as a result of President Trump's leadership we now have a great deal for the American people.' Mr Bessent said the G7 had agreed not to impose what is known as OECD Pillar 2 on US companies. That refers to a 15pc minimum corporate tax rate, which was agreed in principle by 140 countries to be imposed on companies with global revenues of more than €750m (£639m). The idea was to stop multinationals shunting profits from one country to another to take advantage of lower tax rates. Economists complained that it would be only a matter of time before the minimum rate was hiked, locking countries into ever-higher taxes, globally enforced. Joe Biden was an enthusiastic backer of a global minimum rate of corporation tax. Mr Bessent said: 'By reversing the Biden administration's unwise commitments, we are now protecting our nation's authority to enact tax policies that serve the interests of American businesses and workers.' Mr Trump had claimed that the tax deal 'not only allows extraterritorial jurisdiction over American income but also limits our nation's ability to enact tax policies that serve the interests of American businesses and workers'. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
