Senate Republicans plan to delay and make less onerous a levy targeting foreign companies and investors from countries that the US determines have been unfairly taxing US companies.
The provision, officially known as Section 899 and informally known as the “revenge tax,” was drafted by House Republicans and supported by the White House to counter several European countries, Canada, Australia and more nations from taxing US firms in a way those lawmakers argue is discriminatory.
The Senate’s version of the bill released late Monday would delay that new tax until 2027 for calendar-year filers and raise it by 5 percentage points a year until it hit a 15% cap.
The House version of the tax would take effect sooner and rise to 20% over four years on individuals and firms from targeted countries, raising an estimated $116 billion over 10 years help offset the rest of the President
The tax has sparked fears on Wall Street that it could make it much harder for foreign individuals and companies to invest in the US. The levy targets allies that have digital services taxes on US tech companies, as well as countries imposing a global minimum tax on corporations.
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Defenders of the tax, including Republican Representative
“Section 899 is a tax and a tool that will only be used if foreign countries willfully disregard US tax sovereignty in their efforts to inflate their treasuries,” he wrote. Estes urged people unhappy with the tax to lobby their governments to repeal discriminatory taxes.
Treasury Secretary
Market reaction has so far been limited, in part due to uncertainties over how the provision will ultimately take shape. There is little sign that foreign investors are retreating from US bond markets, and the S&P 500 is not far from the record high set in February.
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But investors are concerned about the unintended consequences and the signaling effect of Section 899.
Some bond holders have been spooked by a lack of clarity about whether US government bonds could be taxed. The interest earned by non-US holders of US Treasuries isn’t taxable by the US under what’s known as the portfolio interest exemption. The Senate bill would exempt portfolio interest, per a summary released by the Senate Finance Committee. A footnote in a House report related to the bill states that Section 899 “does not apply to portfolio interest,” but that isn’t mentioned in the House’s version of Section 899 itself.
Some investors say it amounts to a weaponization of US capital markets into law. The tax “challenges the open nature of US capital markets by explicitly using taxation on foreign holdings of US assets as leverage to further US economic goals,”
--With assistance from
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Magan Crane
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