The One, Big, Beautiful Bill (the “Bill”), which is supposed to stimulate the economy and provide jobs and tax relief, has passed out of the House Ways & Means Committee. Unfortunately, the bill includes portions of the retaliatory tax provisions that originated in the Defending American Jobs and Investment Act (H.R. 591 in 2025 and H.R. 3665 in 2023) and the Unfair Tax Prevention Act (H.R. 2423 in 2025 and H.R. 3592 in 2023).
These provisions are meant to send a strong message to the world that the U.S. is not happy with the global OECD Pillar 2 deal agreed to by the prior administration or any other discriminatory or extraterritorial tax. The message is in the form of retaliation—subjecting U.S. employers to significant punitive taxes if foreign governments impose extraterritorial taxes on the U.S., especially the undertaxed profits rule (UTPR) contemplated by Pillar 2.
Concerning the mechanics of the Bill, it invokes several retaliatory measures if a foreign corporation is considered an “Applicable Person,” meaning it is a tax resident of a foreign country with an “unfair foreign tax.”
The Bill removes some of the potential discretion over what might be considered “unfair” tax by specifically identifying the UTPR, digital services taxes (DSTs) and diverted profits tax as unfair taxes. It also permits the Treasury to categorize other taxes as unfair if they are disproportionately borne by U.S. persons, and the Bill provides some guidelines as to what may or may not be considered discriminatory or extraterritorial. As several countries already have UTPRs and DSTs in place or are scheduled to implement such taxes in the near future, this could subject U.S. employers to significant punitive taxes if foreign governments impose these taxes on the U.S.
For any foreign corporation that is considered an Applicable Person, retaliatory measures will kick in, raising the rates of several taxes by five percent per year for four years up to a maximum increase of 20 percent, including the tax rates on:
-
Effectively Connected Income (ECI) (currently taxed at 21%);
-
Branch Profits Tax (currently 30%); and
-
FIRPTA (currently 15%).
The retaliatory measures also impact withholding taxes and payments of interest, dividends or royalties, for example, from U.S. subsidiaries to a foreign parent or foreign affiliate that is an Applicable Person who will correspondingly be subject to an increase in the withholding rate by five percent per year for four years up to a maximum increase of 20 percent. Notably, if a treaty applies to reduce or eliminate withholding, the five to 20 percent rate increase applies to the lower treaty rate.
The Bill also creates a super-BEAT whereby if a corporation is owned more than 50 percent by a corporation that is a tax resident of a discriminatory foreign country, then the:
-
BEAT rate is increased to 12.5 percent;
-
Services cost method is repealed;
-
Exception for payments subject to withholding tax is removed;
-
Three percent base erosion percentage and $500 million thresholds are eliminated; and
-
Perhaps most importantly, amounts that would have been base erosion payments if they were not capitalized into COGS will now be treated as base erosion payments. (Thus, purchases of inventory will still be subject to a COGS-type exception, but items such as royalties that were capitalized into COGS will no longer qualify.)
While opposing extraterritorial taxation is commendable, the consequences of these bills would primarily impact U.S. workers in communities like Paris, Kentucky, and London, Ohio—not Paris, France, or London, England. This approach also undermines the existing tax treaty network, which is designed to eliminate double taxation and promote investment, a goal of this administration. This may also negatively impact U.S.-headquartered multinational groups, as foreign countries are likely to respond in kind and raise taxes on such groups.
The impact of the super-BEAT provisions could actually cause businesses to significantly contract their U.S. footprint. When taken in tandem with current business uncertainty resulting from the trade and tariff wars, imposing punitive taxes pulls out the welcome mat from under the feet of U.S. employers at a time when President Trump’s “America First Investment Policy” emphasizes maintaining and strengthening U.S. economic competitiveness.
GBA will continue to advocate for the elimination of any retaliatory proposals from the final reconciliation package and emphasize the significant impact international companies have on the U.S. economy. It is critical that policymakers recognize that penalizing companies that employ nearly three million U.S. manufacturing workers with compensation seven percent higher than average, produce 22 percent of U.S. exports and reinvest over $80 billion annually in U.S.-based R&D is not good business. Additionally, with approximately 75 percent of all global investment coming from just eight countries—all longstanding U.S. allies—this is exactly the type of investment the administration has stated it is seeking. With European policymakers recently signaling openness to resolving Pillar 2 concerns through negotiation, punitive actions could jeopardize progress and hinder investment.
American workers should not be used as pawns in global tax disputes. These companies operate under U.S. laws, pay U.S. taxes, and have made long-term commitments to American workers and communities. Rather than pursuing retaliatory taxation that undermines our global standing and invites reciprocal measures, the U.S. should embrace diplomatic solutions within the international tax framework. The EU’s willingness to work toward a resolution presents a promising opportunity.