Scott Bessent moves to dump revenge tax’ provision from Donald Trump’s big bill

Australian companies and superannuation funds risk being caught in the crosshairs of the Section 899 provision, which would lift tax rates by as much as 15 per cent, due to Labor’s proposed news media bargaining incentive with US tech giants.

(L-R) Jim Chalmers, Secretary of the Treasury Scott Bessent and Director of the National Economic Council of the United States Kevin Hasset in Washington. Picture: Michael Butcher

The US and other countries reached an agreement to exempt US-based companies from some corporate taxes that were part of a 2021 international minimum-tax agreement, Treasury Secretary Scott Bessent said.

The agreement among the Group of Seven largest economies means that the “revenge tax” being contemplated in Republicans’ tax-and-spending bill should be removed from the legislation, Bessent said. The provision would have imposed additional taxes as high as 20% against companies from countries that imposed what the U.S. deemed as discriminatory taxes.

The potential tax, which would have become Section 899 of the tax code, had roiled markets and frustrated foreign-owned companies, who had argued that it would depress investment in the U.S. Removal, however, could punch a hole in the GOP tax bill; the House version was slated to raise $US116 billion through 2034 and a gentler Senate version would have raised $52 billion.

“We will defend our tax sovereignty and resist efforts to create an unlevel playing field for our citizens and companies.” Bessent said.

Australia risked being caught in the crosshairs of the plan, which could have lifted tax rates by as much as 15 percentage points, due to Labor’s proposed news media bargaining incentive which would compel US tech giants like Meta and Google to pay for local news content.

Shelving Section 899 will be a major relief for Australian companies and superannuation funds with interests in the US, who feared the higher taxes, as well as local media companies concerned Labor might backtrack on its commitment to the news bargaining incentive, which promises a significant revenue stream.

Anthony Albanese welcomed Bessent’s decision, saying the shift marked a victory for his government’s advocacy efforts.

“We raised this issue with Secretary Bessent when I met with him in Canada on the sidelines of G7,” Mr Albanese told reporters in Sydney on Friday. “This would adversely impact on Australian investment if it had been implemented, particularly on investment from superannuation companies.”

In a joint statement late Thursday, the top tax writers in Congress said they would remove the language from the tax bill, which the House passed last month and could become law as soon as next week. House Ways and Means Committee Chairman Jason Smith (R., Mo.) and Senate Finance Committee Chairman Mike Crapo (R., Idaho) said they remain ready to act if other countries abandon or slow-walk the deal.

The G-7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the U.S.

The agreement is the latest step in the winding path of international tax cooperation over the past few years. Former Treasury Secretary Janet Yellen struck a deal with about 140 other countries that would require companies to pay at least a 15% corporate tax in each jurisdiction where they operate.

The aim was to prevent a race to the bottom in corporate tax rates that let companies put profits in low-tax jurisdictions.

Other countries began implementing the tax, but the U.S. didn’t change its tax laws, which already did impose a minimum tax on U.S.-based companies that was structured differently from the international deal.

Democrats couldn’t get enough votes for the changes to conform to the new international standards when they controlled Congress. Republicans hated the deal, arguing that Yellen effectively committed the country to a tax system that American lawmakers hadn’t approved.

One particular feature of the deal was troubling to many U.S.-based companies. The Undertaxed Profits Rule, or UTPR, is a way for countries to enforce the 15% on companies whose home countries -- such as the U.S. -- aren’t part of the deal. Under the UTPR, other countries could have looked at U.S. multinational companies’ tax rates and imposed taxes on them because they weren’t paying enough in the U.S. In some cases, U.S. companies could owe other countries money because they use domestic incentives such as the research and development tax credit.

Biden administration officials had won temporary reprieves for U.S. companies, but the UTPR has been looming over the future. Since President Trump’s inauguration, the U.S. has been pushing for a resolution, floating never-used or novel retaliatory taxes.

Bessent’s statement was a welcome development to protect U.S. tax sovereignty, said Rep. Kevin Hern (R., Okla.), one of the chief opponents of Yellen’s deal.

“Today’s announcement is a tremendous step forward,” he said. “America First does not mean America Alone. Good tax policy at the international level can lift us all, without penalizing American taxpayers.” The National Foreign Trade Council, a business group, praised the agreement. A spokeswoman for Canada Finance Minister François-Philippe Champagne didn’t immediately respond to a request for comment.

“This is what leadership looks like: Choosing economic strength over squandered opportunity, investment over isolation, and American workers over misguided tax hikes,” said Jonathan Samford, president and CEO of the Global Business Alliance, which represents foreign-owned companies operating in the U.S.

The Wall Street Journal