The ‘Revenge Tax,’ officially known as Section 899, emerges as a controversial component of President Donald Trump’s ambitious legislative proposal, the ‘One Big Beautiful Bill Act.’ This measure, driven by House Republicans and endorsed by Trump, targets foreign investors from nations deemed to impose ‘unfair’ or ‘discriminatory’ taxes on U.S. businesses. The tax aims to deter these countries from maintaining such fiscal policies, urging them to engage in negotiations.
Section 899’s primary objective is to penalize foreign investors by expanding the Base Erosion and Anti-Abuse Tax (BEAT), which prevents corporations from shifting profits abroad to evade taxes. The provision allows the U.S. to incrementally increase existing taxes on countries with ‘unfair foreign taxes’ by 5 percentage points annually, capping at 20 points above the legal rate. This could lead to passive investment income facing a U.S. withholding tax as high as 50% in certain scenarios.
The tax would apply to dividends, interest, and royalties earned by foreign investors from countries labeled as ‘discriminatory.’ However, exceptions exist for foreign pension funds and charitable organizations. Notably, U.S. Treasury bonds and portfolio interest remain unaffected. This measure could raise interest costs for some U.S. borrowers, as many loan agreements include ‘gross-up’ clauses, requiring borrowers to cover tax increases enacted post-agreement.
Explicame: ‘Revenge tax’ set to hit passive income at 50%, analysts warn
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