House GOP Bill Provides US Cudgels for Global Tax Negotiations

The call by US lawmakers to impose new retaliatory taxes on foreign-owned companies is a strategic move to give the Trump administration leverage to shield American companies from the global minimum tax framework.

Practitioners and observers say the retaliatory taxes included in the House GOP tax bill could motivate countries to back off plans to apply the 15% minimum tax on US companies and encourage foreign businesses to push their governments to make changes the US wants to see.

“The provision would put enormous pressure on foreign countries to repeal or exempt US headquartered groups from any unfair foreign tax,” Jason Yen, principal at EY’s international tax and transaction services practice, said in an email.

The House bill, passed Wednesday by the Ways and Means Committee, proposes a new tax code Section 899 that would allow the Treasury Department to increase tax rates of foreign-owned companies by 5 percentage points if their home countries are applying specific discriminatory taxes.

Daniel Bunn, president and CEO of the Tax Foundation, said the way the current bill is written would “certainly impact the thinking and the reality around US inbound investment.”

The House committee proposal comes as European tax officials continue to resist US demands to drop the minimum tax. Benjamin Angel, head of direct taxation in the European Commission, said at a May 13 event in Brussels that “there was no desire whatsoever” to do so, adding the EU was keen to continue negotiating with the US on the issue.

The 15% global minimum tax is effective in dozens of countries, including all EU countries.

Industry groups across the EU and the UK urged their governments in late March to head off the US’s retaliatory tariff and tax threats, suggesting compromises on the global tax deal, scrapping of digital services taxes, and increased dialogue with the US.

The GOP bill would also increase the base erosion and anti-abuse tax, or BEAT, for foreign-owned companies operating in the US if their parent countries are applying specific “unfair” foreign taxes. BEAT was originally designed to prevent US corporations and US affiliates of foreign multinationals from shifting profits to lower-taxed countries.

The new Section 899 and the “super BEAT” provision were introduced in stand-alone bills by Ways and Means Chair Jason Smith (R-Mo.) and Rep. Ron Estes (R-Kan.), respectively, earlier this year.

The tax bill could be considered by the full House as early as next week. Republicans hope the bill could pass the Senate and head to the president’s desk by July 4.

Several senators said they expect the international provisions of the House bill to change.

Treasury Input

Pat Brown, partner and co-leader of PwC’s National Tax Services, said it was clear the House tailored the proposed Section 899 to Treasury’s negotiating position on the global minimum tax. This, he said, is different from the stand-alone bill that was previously introduced by Smith.

Republican lawmakers have seized on the so-called undertaxed profits rule, or UTPR, an enforcement measure that allows a country to collect tax from a multinational company when both its parent and local jurisdictions are charging below a 15% rate.

The Trump administration insists that the US tax system must operate “side by side” with the global minimum tax framework. It contends that changes the OECD could make to shield American companies from the UTPR or to bless a version of the US minimum tax on companies’ foreign income aren’t enough.

Rebecca Burch, deputy assistant Treasury secretary for international tax affairs, said last month that the US doesn’t want global minimum tax rules to apply where the US is already taxing income.

Both the administration and lawmakers have also slammed the use of digital services taxes, or DSTs—small levies on income made from online activity such as digital ad sales. They argue that these kinds of taxes discriminate against US tech giants like Google, Amazon, and Meta Platforms Inc.

Both Brown and Michael Plowgian, a partner at KPMG, said previous iterations of Section 899 language were broad, targeting “extraterritorial” and “discriminatory” taxes.

Now, the proposed section specifically targets the UTPR, diverted profits taxes, and digital services taxes. US-based foreign companies from countries that have these taxes on their books would be spared if their home country turns those taxes off for US entities.

“This language certainly is a significant move in the direction to accommodate Treasury’s negotiating position,” Brown said.

Countries’ Response

Plowgian, former deputy assistant Treasury secretary for international affairs under the Biden administration, said there may be mixed reaction from other countries to these retaliatory measures.

He pointed to the ways in which countries have responded to President Donald Trump’s tariffs as a possible indicator of countries’ responses.

“We’ve seen a divergence in how countries have responded to the tariffs, with some coming along and others pushing back,” Plowgian said.

The retaliatory measures could also energize foreign businesses to lobby their governments to make the changes the US is asking for.

“They’re saying to their governments that if you don’t negotiate and we don’t fix this, we’re going to get hit by these retaliatory taxes in the U.S., so it’s getting more countries to consider how they negotiate,” said Cathy Schultz, vice president of tax and fiscal policy at the Business Roundtable.