The “Revenge Tax” is Dropped from the One Big Beautiful Bill Act

Last week, the House gave final approval to Trump’s One Big Beautiful Bill Act. However, Congressional Republicans agreed to remove the so-called “revenge tax” provision. Section 899 would have allowed the federal government to impose taxes on companies with foreign owners, as well as investors from countries judged as charging “unfair foreign taxes” on U.S. companies.

It would have operated by increasing rates of U.S. taxes on certain U.S. source payments where the payment was received by a foreign person who has a prescribed connection with a “discriminatory foreign country”. A discriminatory foreign country was defined as a country other than the United States (or a U.S. possession) that has one or more “unfair foreign taxes”.

It was proposed that the increased rates would apply to:

• withholding taxes (e.g., on income such as dividends, interest, and royalties, subject to certain exceptions)

• income taxes on effectively connected income of non-U.S. persons ,and

• tax on dispositions and distributions involving U.S. real property interests (as governed by FIRPTA).

Great concern had been expressed by Wall Street and affected stakeholders about the enactment of Section 899 and its impact on foreign investment in the United States. Those concerns have been alleviated for now, and time will tell regarding any future action to be taken.