Report from the New York Times
In Brief – The Trump Administration has called on Republicans in Congress to drop a controversial tax provision dubbed the “Revenge Tax” from the massive budget reconciliation bill. Referred to as Sec. 899, the measure would impose a new federal tax penalty on foreign investors from countries that impose “unfair” taxes on US companies. The tax penalty was primarily linked to two foreign tax policies, digital services taxes (DTSs) imposed primarily on US-based tech giants, and taxes enforcing the global “minimum tax” component of the two-part global tax reform agreement negotiated by the Biden Administration at the OECD in 2021. Critics of Sec. 899 argued that the tax penalty, which could reach up to 15% on earnings from a wide range of investments in the US, would lead to less foreign investment in US-based assets, including directly in US companies and equities, as well as in the US-based operations of foreign corporations. Secretary of Treasury Scott Bessent announced that he had reached agreement with other Group of 7 Finance Ministers to exempt US corporations from the other countries’ global minimum taxes and would be working to get the same commitment from the rest of the Group of 20 countries, and so the Congress should pull the Revenge Tax out of the budget bill. Sec. Bessent did not directly address foreign DSTs.
Context – President Trump aggressively opposed DSTs in his first term and used tariff threats to keep them at bay. He also criticized the OECD tax agreement, as did most congressional Republicans. Trump quickly exited the OECD deal when he returned to office in January and revived tariff threats against countries with DSTs. But following April’s massive wave of tariffs imposed on countries regardless of DST policies, the effectiveness of tariff threats to claw back DSTs appeared questionable. Sec. 899 was a big new stick showing the commitment of the Trump Administration to deliver a win for Big Tech. But it seems to have been too big a swing and combatting digital taxes will instead be sent back to the various trade negotiation queues.