The punitive and discriminatory tax provision, known as Section 899, in the One, Big, Beautiful Bill will fundamentally reshape how U.S. subsidiaries are taxed in response to foreign digital and extraterritorial tax regimes.
Section 899 Means Investment Will Leave ‘Town Fast’:
- Daniel Bunn, President and CEO, Tax Foundation, June 2: “There’s still going to be a question mark in people’s heads when they’re considering investing in the U.S.,” he said. And added international companies may want “to potentially be able to get out of town fast if somebody does decide to enforce [section] 899.”
- Thomas Barthold, Chief of Staff, the Joint Committee on Taxation, May 30: Section 899 would lead to a “decline in foreign demand for US direct and portfolio investment” and “general avoidance and compliance behavior” by foreign companies in response to the retaliatory taxes.
- Reuven Avi-Yonah, Irwin I. Cohn Professor of Law, the University of Michigan Law School, June 2: “What people will be worried about is that it’s really an unpredictable environment to invest into the U.S.”
- Spokesperson, The Investment Company Institute, May 30: “ Section 899, however, is currently written in a manner that could limit foreign investment to the U.S.—a key driver of growth in American capital markets that ultimately benefits American families.”
- Nigel Green, CEO, deVere Group, May 30: “The measure risks detonating investor confidence and could set off a damaging pullback of foreign capital just as the US needs it most…It punishes the very people whose capital keeps American businesses growing, whose investments fund US debt, and whose companies are employing millions of US workers…If Washington wants to repel foreign investment into America, this is exactly how to do it.”
- Michael Brown, Strategist, Pepperstone Group, May 30: “We’re already dealing with a market where Treasuries, to foreign investors, probably aren’t the most attractive investment…If you’re now talking about massively unfavorable tax treatment, then it’s just another reason to stay away.”
Section 899 ‘Makes No Sense’:
- Douglas Holtz-Eakin, President, American Action Forum, May 29: “The brand for the US has been, we are the place where money goes, it’s safe to go there, it’s highly productive there…And this and the tariff episodes have damaged that brand badly…The president is telling foreign-headquartered companies you need to build your plants in the US—instead of exporting that, you need to make it in the US and sell it to us…But if they do that, they run into these taxes. It makes no sense.”
- Tim Adams, Chief Executive, the Institute of International Finance, May 29: “At a time when the administration is actively seeking foreign investment in the US to support job creation, capital formation and reshoring of manufacturing capability, this could be counter-productive.” Adams added, “Any disruption to the flow of capital and foreign direct investment could have negative unintended consequences for American companies, jobs and economic competitiveness.”
- Matthew Brown, Partner, A&0 Shearman, June 4: “It’s a significant problem.”
Section 899 Could Trigger ‘5% Plunge’ in U.S. Dollar:
- Ludovic Subran, Chief Investment Officer, Allianz SE, June 3: He predicted a 10% selloff in equities, a 5% plunge in the dollar, and a half percentage-point increase in US Treasury yields. Foreign investors hold a significant portion of US long-term securities at around $31 trillion, including stocks and bonds.
- “I don’t think markets are pricing in today a full implementation of Article 899, so that could actually spook markets vividly,” he said, adding that the measure would be a form of “capital control.”
- Elias Haddad, Senior Markets Strategist, Brown Brothers Harriman, May 30: “It would deter foreign investment in U.S. assets at a time when the country faces increasing reliance on foreign capital to finance its ballooning debt. Clearly, this is not good for the dollar,” and “playing with fire.”
- Geoff Yu, EMEA Macro Strategist,BNY in London, May 30: “Treasuries are offering value right now – you’re getting higher yields, the dollar is weaker.”
Section 899 Invites a ‘Capital War’:
- George Saravelos, Head of FX Research, Deutsche Bank, May 31: “We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes…”