USA Trends and Developments Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
Weil, Gotshal & Manges LLP 2001 M Street NW Suite 600 Washington, DC 20036 USA
Tel: +1 202 682 7000 Web: www.weil.com
The Revenge Tax – Proposed (and Withdrawn) Section 899 Early drafts of the OBBBA included a provision (referred to as “Section 899”) that targeted certain foreign countries (and such countries’ residents) for retaliatory US tax measures. Such countries were defined as countries that had “extraterritorial” or “discriminatory” taxes that applied to US persons or foreign corporations owned by US persons. Such “extraterritorial” or “discriminatory” taxes generally would have included Pillar Two’s undertaxed profits rule, digital services taxes, or diverted profits taxes. If a foreign country imposed any such taxes on US persons or foreign corporations owned by US per - sons, then Section 899 would apply retaliatory meas - ures on such countries and their residents, including a required increase in tax rates, removal of certain tax exemptions, and other measures. For example, itera - tions of Section 899 generally would have: • increased tax rates incrementally by 5 percentage points in each taxable year until reaching a cap of 15 or 20 percentage points; • removed the exemption from US tax that typically applies to foreign governments (including sover - eign wealth funds and pension plans); and • modified and expanded the application of the base erosion and anti-abuse tax (BEAT) to certain non- publicly traded US corporations that are majority- owned by residents of a country with an “extrater - ritorial” or “discriminatory” tax. Section 899 was ultimately not included in the final OBBBA thanks to a deal between the G7 countries
The two most significant recent developments in US international tax relate to the USA’s withdrawal from the OECD’s “Global Tax Deal” and the OECD’s subse - quent issuance of its “Side-by-Side Package”; and the passage of President Trump’s The One, Big, Beautiful Bill Act (“OBBBA”). The Global Tax Deal and Side-by-Side Package Withdrawal from the Global Tax Deal On 20 January 2025, as one of his first acts as presi - dent in his second term, President Donald Trump issued an executive order (the “BEPS Executive Order”) stating that the OECD’s planned Global Tax Deal with the US would (i) limit the ability of the US to enact tax policies that serve the interests of US businesses and workers; and (ii) cause, along with other discriminatory foreign tax practices, US com - panies to face retaliatory international tax regimes if the US did not comply with foreign tax policy objec - tives. Accordingly, the BEPS Executive Order stated that the Global Tax Deal had no further force or effect in the US and it directed the secretary of the treasury to notify the OECD that any commitments made by the Biden administration with respect to the Global Tax Deal would have no force or effect in the absence of an act by the US Congress. The BEPS Executive Order further directed the secretary of the treasury to investigate whether there were any countries with tax rules that were extraterritorial or that would dispropor - tionately affect American companies, and to develop a list of options for protective measures or other actions that the United States should adopt in response to such tax rules.
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