Under the proposed Defending American Jobs and Investment Act, introduced in the House of Representatives and approved by the House Ways and Means Committee on May 14, 2025, as part of the Trump administration’s tax package known as “The One, Big, Beautiful Bill,” a new Section 899 would be added to the Internal Revenue Code. This proposed provision—titled “Enforcement of Remedies Against Unfair Foreign Taxes”—represents a significant new international tax enforcement measure.
According to the administration, the proposed Section 899 is intended to serve as a strong legislative response to the growing use of foreign tax regimes that, in its view, unfairly target and burden U.S. businesses and individuals operating abroad. The provision would authorize countermeasures against persons and companies located in jurisdictions that impose what the legislation defines as an “unfair foreign tax.”
The bill is expected to be considered by the full House next week as part of the reconciliation measure. Presuming it passes the House, this portion of the reconciliation measure will then be considered by the Senate Finance Committee, where provisions of the House measure could be changed, and then the full Senate.
Go-To Guide
|
- Proposed Section 899 would significantly increase U.S. federal income tax rates—by 5% to 20%—on certain types of income earned by non-U.S. individuals and entities that are tax residents of, or are established or effectively managed in, “discriminatory foreign countries.” These jurisdictions are defined as those that impose an “unfair foreign tax” under the proposed legislation.
- These elevated rates would apply to passive U.S. source income (such as dividends, interest, royalties, and rents), as well as income effectively connected with a U.S. trade or business (ECI).
- The legislation defines “unfair foreign taxes” broadly, encompassing digital services taxes and other measures that have been widely adopted by foreign jurisdictions. As a result, a large number of non-U.S. individuals and entities could fall within the scope of the increased tax rates.
- These higher rates would apply across a broad spectrum of existing tax provisions and would affect nonresident individuals, foreign corporations, and even sovereign entities.
- If enacted, Section 899 would introduce substantial economic and compliance challenges, particularly for foreign governments, multinational enterprises, and investors with connections to jurisdictions that impose taxes perceived to disproportionately impact U.S. interests—such as digital services taxes or global minimum tax regimes.
- Taxpayers potentially impacted by this proposal should carefully assess how their U.S. tax exposure could change under the new rules and evaluate possible strategies to mitigate adverse effects.
|
/>i
