Senate GOP’s ‘Revenge Tax’ Still Packs Punch Despite Changes

The Senate version of the “revenge tax” has key differences from the House proposal, but still provides the Trump administration significant leverage to pressure countries to eliminate what it calls “unfair” foreign taxes.

The Senate’s iteration of proposed Section 899 delays the effective date for a year, giving countries time to change policies the Trump administration finds objectionable. It also doubles down on the consequences that countries face if they impose a part of the global minimum tax framework—a project that the GOP has panned as “extraterritorial” for years.

“The changes don’t reduce the pressure, they don’t undermine the goals of getting other countries to change their laws,” said Michael Plowgian, a partner at KPMG and former deputy assistant secretary of international tax affairs at the Treasury Department.

The House-passed bill proposes a 2026 effective date, while the Senate’s version delays the effective date of the tax until 2027, and caps the rate increase at 15%.

“What you see the Senate doing is essentially trying to respond to the concerns that January 1, 2026, is just way too soon for stuff to get buttoned up,” said Pat Brown, partner and co-leader of PwC’s Washington National Tax Services practice.

Brown, too, said he didn’t think that changes made in the Senate’s bill would “fundamentally alter the incentive for other countries to consider changes to their laws.”

The global minimum tax is part of a larger deal agreed to by over 140 countries at the Organization for Economic Cooperation and Development in 2021. It seeks to impose a 15% minimum levy on multinational companies in every country they operate.

The framework is in effect in dozens of countries around the world including most of the EU, the UK, Japan, and Korea.

Trump’s Treasury Department has repeatedly called for the global minimum tax framework to remain separate from the US tax system, arguing that the US has, for decades, sufficiently levied taxes on foreign-earned income.

And late last month the top US delegate to the OECD, Rebecca Burch, said that Section 899 is the “ultimate backstop” to cement the US position to persuade countries to change tax policies the Trump administration finds unfair. Burch is deputy assistant Treasury secretary for international tax affairs.

Extraterritorial, Discriminatory Taxes

Both the Senate and the House’s proposed Section 899 raise taxes on foreign-owned companies in two ways: first through raising rates—5 percentage points every year up to 15 percentage points in the Senate’s bill, and 5 percentage points up to 20 percentage points in the House bill.

The second way is through imposing a more onerous version of the base-erosion and anti-abuse tax, or BEAT. Republicans passed BEAT in 2017 as part of their tax overhaul to limit profit-shifting payments out of the US.

The Senate’s proposed “super BEAT” would apply to a much broader swath of foreign-owned companies.

In both chambers’ tax bills, lawmakers specifically name the undertaxed profits rule and digital services taxes as unfair levies.

Digital services taxes are small levies imposed on income made from online activity such as digital ad sales. Republicans and Democrats have slammed DSTs as discriminatory, arguing that they largely apply to US tech behemoths like Alphabet Inc.'s Google, Meta Platforms Inc., and Amazon.

The UTPR is the enforcement rule in the global minimum tax framework that allows countries to collect tax from a multinational company if both its local jurisdiction and their parent country isn’t charging at least a 15% minimum rate.

Joshua Ruland, a principal at EY’s National Tax Department, observed that the Senate’s proposal designates different retaliatory taxes for foreign levies that are found to be “extraterritorial” and “discriminatory.”

Ruland explained the Senate bill applies the rate increase only to foreign taxes that are found to be extraterritorial, while “super BEAT” applies to foreign taxes that are either extraterritorial or discriminatory. The bill explicitly labels the UTPR as an extraterritorial tax while DSTs are explicitly labeled as discriminatory.

Therefore, a company whose parent country imposes a UTPR is subject to both a 5 percentage-point rate increase and the “super BEAT.”

Joshua Odintz, a partner at Holland & Knight, said the UTPR might be getting harsher treatment because congressional tax writers view the rule as the most problematic.

“DSTs are bilateral issues, and some countries have exited their DSTs or put them on hold,” he said. “Whereas, the UTPR, that is the real sin that Senate Finance and Ways and Means are going after. So perhaps that, that is the reason for why they put a greater penalty on UTPR.”