In May 2025 the U.S. House of Representatives passed a broad tax and spending bill known as the “One Big Beautiful Bill Act” (H.R.1). Among its many provisions is Section 899, a proposed measure that would allow the U.S. Treasury to impose increased withholding tax rates on residents of countries that implement what the U.S. defines as “unfair foreign taxes.”
You can read the full bill, including Section 899, on Congress.gov here.
Why Is the U.S. Introducing Section 899?
What Does Section 899 Propose?
WTax: Keeping You Ahead of Global Tax Shifts
Why Is the U.S. Introducing Section 899?
Section 899 is a response to several foreign tax policies including Digital Services Taxes (DSTs) and the Undertaxed Profits Rule (UTPR). These are part of a broader international initiative known as the OECD’s Pillar Two framework.
The Pillar Two framework, developed by the Organization for Economic Co-operation and Development (OECD), introduces a global minimum corporate tax rate of 15% for large multinational enterprises. While its goal is to reduce base erosion and profit shifting, some U.S. policymakers view these tax mechanisms and others like Diverted Profits Tax (DPT) as tools that unfairly target American firms.
Section 899 is intended to counteract these effects by introducing higher U.S. withholding taxes on entities and individuals connected to countries that adopt such tax regimes.
Who Could Be Affected?
If enacted, Section 899 would apply to a broad category of foreign individuals and entities that are tax resident in a country designated as having “unfair foreign taxes.” This could include corporations, partnerships, trusts and even foreign governments or government-linked organizations. Non-public companies that are majority-owned by residents of such countries may also be affected.
Countries mentioned in early discussions include the United Kingdom and Austria, both of which have implemented DSTs. Other jurisdictions such as France, Italy, Spain, Canada and Australia may also be considered for inclusion depending on future guidance from the U.S. Treasury, as they have also adopted or proposed tax regimes which fall within the scope of what Section 899 defines as “unfair foreign taxes.”
What Does Section 899 Propose?
Section 899 would allow the U.S. to increase withholding tax rates on U.S.-source income paid to residents of designated countries. These increases could apply to:
- Dividends
- Interest
- Certain capital gains
- Other forms of U.S.-source income subject to withholding
The tax increase would be applied in 5% annual increments up to a maximum of 20% above existing rates. This could result in effective rates well above those set under current tax treaties.
When Would It Take Effect?
The proposed changes would take effect from 1 January of the year following a country’s designation as having “unfair foreign taxes.” The U.S. Treasury will issue formal guidance identifying which countries fall under this classification. Until that guidance is published no increases will apply.
Are There Any Exemptions?
Some categories of income are expected to remain exempt under current U.S. law. These may include:
- Portfolio interest
- Bank deposit interest
- Certain interest-related dividends
- U.S. real property gains held by qualified foreign pension funds
Further details will be confirmed once implementing regulations are issued.
WTax: Keeping You Ahead of Global Tax Shifts
Section 899 is still making its way through the U.S. legislative process, but its potential impact on affected foreign investors underscores the importance of staying informed about changes in global withholding tax rules.
WTax specializes in identifying and recovering excess withholding tax on global investment income. Our tax technical team, comprising international tax lawyers, chartered accountants and multilingual professionals, monitors withholding tax developments across global markets. We will continue to keep clients informed on Section 899 and other relevant international updates as they unfold.
Contact us today to learn how WTax can help optimize your U.S. withholding tax recovery process and enhance your cross-border returns.
