Donald Trump’s ‘revenge tax’ dropped after global tax floor ditched

Australian super funds and companies had risked being caught in the crosshairs of the Trump plan.

Treasurer Jim Chalmers, US Treasury Secretary Scott Bessent and ambassador to the US Kevin Rudd. Picture: NewsWire

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A Group of 7 agreement that led to US Treasury Secretary Scott Bessent scrapping a retaliatory tax proposal that had threatened Australian investors in America is still being examined by Labor, with significant tax tensions remaining between the two countries and the Trump administration’s 10 per cent tariff on Australia still in play.

Australia was caught up in the so-called 899 tax plan because it backed a global tax rate floor for OECD countries.

That tax floor could have lifted corporate tax rates to a minimum of 15 per cent and would have hit many US multinational companies, something which Donald Trump was vehemently against.

Mr Bessent said in a social media post on X on Friday that he would drop Section 899 within the ‘One Big Beautiful Bill’ as part of a negotiation with G7 countries on removing the tax floor for US companies.

Mr Bessent has directed Republicans to shelve the retaliatory tax. Picture: AFP

Treasurer Jim Chalmers raised the Section 899 tax matter on a phone call with Mr Bessent this week, saying that it was destructive to Australian investors, but said on Friday that Australia was still working out whether it backed the G7’s plan on the OECD’s tax floor.

“We’ll consider the details of the G7 agreement,” Dr Chalmers said.

“Australia will continue to engage constructively through the OECD on international tax rules that are fair and ensure multinationals pay their fair share in Australia.”

Significant tax tensions remain between Australia and America, including Labor’s proposed news media bargaining incentive, which would compel US tech giants such as Meta and Google to pay for local news content. Australia also has digital transaction taxes contained in the GST law which the US administration is also looking to retaliate against with tariffs.

K&L Gates partner Betsy-Ann Howe said the tension on tax between the US and Australia was not over just because 899 had been dropped.

“There are still tax challenges for the relationship between Australia and the US. For example, we know that the US Treasury has written twice to either the ATO or the Treasury in Australia in relation to the interpretation taken by the ATO in relation to software and royalties,” Ms Howe said.

She says the so-called Netflix tax, which is a digital services tax, would still be a problem with the US.

“Our Netflix tax which is contained in the GST legislation has an impact on non-residents supplying online services to Australian customers. US multinational suppliers of these services are most affected.”

The US section 899 was not a trade-off for these digital taxes or GST but for the OECD’s tax floor.

Julie Abdalla, head of tax and legal at The Tax Institute in Australia, said domestic tax rules were far-reaching.

“In a globalised world, domestic tax policy doesn’t only affect the country setting it, especially in the case of a major player like the US.

“We don’t set our tax policy in a vacuum. We need an agile, modern tax system, that can respond to changing global conditions as needed, to support Australians as much as possible.”

Dropping the 899 tax was part of a broader agreement that saw other countries exempt the US from the 2021 OECD/G20 global tax deal, specifically Pillar Two, which sought to establish a global minimum corporate tax rate of 15 per cent for large multinational enterprises.

“OECD Pillar Two taxes will not apply to US companies, and we will work co-operatively to implement this agreement across the OECD-G20 Inclusive Framework in coming weeks and months. President Trump paved the way for this historic achievement,” Mr Bessent said.

“I have asked the Senate and House [of Representatives] to remove the Section 899 protective measure from consideration in the One, Big, Beautiful Bill,” Mr Bessent said.

“This understanding with our G7 partners provides greater certainty and stability for the global economy and will enhance growth and investment in the United States and beyond.”

Asked about Mr Bessent’s move to direct Senate Republicans to axe the proposal, Anthony Albanese claimed it as a win, despite his government still considering the G7 proposal which led to the US dropping the tax.

“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.

“This would adversely impact on Australian investment if it had been implemented, particularly on investment from superannuation companies.”

Mr Albanese pointed to his government’s efforts to bolster the economic relationship between Australia and the US, pointing to a roundtable discussion he had held with superannuation funds in Washington earlier this year.

Anthony Albanese welcomed the decision to shelve the controversial tax proposal. Picture: Patrick Gee/NewsWire

Chairman of Australia’s $308bn Future Fund, Greg Combet, has argued that the bill had made the US a more risky and uncertain prospect for investors.

AMP, with $135bn under management, also said it paused its longer-term investment in the US ahead of Section 899.

Stuart Eliot, AMP Super’s head of portfolio management, said changes to tax rules were still being watched closely.

“We welcome the suggested removal of Section 899 from the OBBBA. While this is an encouraging development, we will continue to take a measured approach to new long-term investments in the US.”

“We’ll continue to monitor developments closely to ensure our investment strategy remains responsive and well-positioned for the long term.”

Dr Chalmers said the US scrapping Section 899 was a really welcome decision for Australian investors.

A big feature of all my engagements with Australian businesses and investors over the past few weeks has been listening to and understanding their strong concerns with Section 899.

“I would like to thank the Treasury Secretary again for his time this week where I was able to represent and raise those concerns with him directly.”

“In that meeting he said he was progressing what he could to try and resolve these issues and we’re really pleased to see some of that progress in his announcement today.”