A few minutes later, senator Mike Crapo, the chairman of the Senate finance committee, confirmed that “we will remove proposed tax code Section 899 from the One Big Beautiful Bill Act”.
Sigh of relief
The bill, which enshrines some of the landmark policies of the Donald Trump administration, cleared the House of Representative on May 22. It was also meant to introduce hikes to withholding taxes and other taxes on companies from countries that have adopted the undertaxed profits rule within the 15 per cent global corporate minimum tax framework, as well as digital services taxes or so-called diverted profits taxes.
Analysis of government data by the Tax Foundation found that more than 80 per cent of the current US FDI stock emanates from countries caught by the bill’s retaliatory tax provisions.
Bessent’s announcement was a relief to the foreign business community in the US, which has long raised concerns about section 899. The US administration has chosen “economic strength over squandered opportunity, investment over isolation, and American workers over misguided tax hikes”, argued Jonathan Samford, the president and CEO of the Global Business Alliance, which represents 200 foreign companies with operations in the US, in a note on June 26.
“Bessent rightfully leveraged the views of his counterparts in the G7 economies to preserve, indeed strengthen, the US’s position on cross-border tax policy,” adds Harry Broadman, who served as chief of staff of the US president’s council of economic advisers in the George H.W. Bush White House and then US assistant trade representative under President Bill Clinton.
More than 140 jurisdictions have signed up to the OECD’s global anti-base erosion model rules that introduced the so-called global minimum tax reform. They were unveiled in 2021 and require multinational enterprises with annual revenues of more than €750mn to pay an effective tax rate of at least 15 per cent in each jurisdiction where they operate. This is the most significant international tax reform for MNEs in recent years, and arguably a rare success for multilateralism these days, provided it pans out as planned.
However, neither the US nor China have implemented it. In the US, after the Biden administration failed to get it through Congress, Donald Trump vocally opposed the reform since day one, promising to fight the UTPR and prevent its application to US companies since inauguration on January 20.
“If we remove the UTPR, we no longer have a global minimum tax,” argued Pascal Saint-Amans, who spearheaded the negotiations that culminated in an agreement between about 140 jurisdictions worldwide in 2023 to implement Pillar 2 and is now a partner at advisory firm Brunswick and professor at Lausanne University.
The agreement between the G7 and the US will prevent the loss of more than $100bn in US taxpayer dollars, Bessent said in his post on X.
It will now have to be confirmed by the OECD and all the countries that signed up to Pillar 2 via consensus.
