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‘Revenge' Tax? Section 899 Is More Like Repair

‘Revenge' Tax? Section 899 Is More Like Repair

Wall Street Journal2 days ago

Much of the financial press has taken to labeling Section 899 of the reconciliation bill a 'revenge tax'—generally leaving out what exactly it's revenge for. The section would allow the Treasury secretary to tax certain income of residents and firms of a country that imposes unfair extraterritorial and double taxation of U.S. companies. Given that foreign corporations and other interests are lobbying against the provision, it's worth examining who the winners and losers might be and therefore why some think the tax represents 'revenge.'
During the last administration, Treasury Secretary Janet Yellen led American participation in discussions among nations in the Group of 20 and the Organization for Economic Cooperation and Development to harmonize the global taxation of large multinational corporations. The goal was to prevent a 'race to the bottom,' in which countries slash tax rates to attract firms to incorporate in their jurisdictions.
Neither the OECD nor the G-20 has any rule-writing authority, but those discussions led to an agreement—never submitted to Congress for approval—that allows foreign countries to change their tax rules regarding the taxation of multinationals with annual revenue over €750 million (about $860 million). Known as Pillar Two, this framework allows each country to tax the profits of foreign subsidiaries in their country at a minimum rate of 15%. The parent company is responsible for imputing that tax to lightly taxed countries. This conflicts with parts of U.S. tax law and can lead to double taxation and extraterritorial taxation in some cases. Unilateral digital-services taxes can be levied under the same rubric.
The previous administration, led by the Treasury secretary, both encouraged and acquiesced to other nations changing their own tax laws in line with Pillar Two against the interests of many U.S.-owned multinationals. Many in Congress spoke out against this at the time and introduced Section 899 in the 2023 House reconciliation bill. Its inclusion in the 2025 reconciliation bill is a second attempt to pass it, given the outcome of the 2024 election.

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