Avoid a multinational tax war! US withdraws “retaliatory tax” allies make concessions to dispel Wall Street concerns

The Zhitong Finance App learned that the US Treasury recently announced that it has reached an agreement with G7 allies to exempt US companies from additional tax burdens in some overseas markets. In exchange, the US side agreed to withdraw Section 899's “retaliatory tax” clause from President Trump's tax bill.

Treasury Secretary Scott Bessent said on social media on Thursday: “The OECD's second pillar tax package will not apply to US businesses. In the weeks and months ahead, we will work together to advance the implementation of the agreement within the OECD-G20 inclusive framework.”

He added, “Based on current progress and consensus, I have proposed that both houses of the House of Representatives remove the 899 protective measures clause from the review of the Greater and American Act.”

Congressman Jason Smith, Chairman of the Congressional Revenue Committee, and Senator Mike Crapo immediately responded, “At Secretary Besant's request and in order to maintain the common position of US tax sovereignty, we will remove the proposed Section 899 tax rule clause from the Big and American Act.”

This section 899, informally known as “retaliatory taxation,” was drafted by Republican lawmakers and supported by the White House to counter the taxation policies adopted by many European Union countries, Canada, Australia, and other economies against US companies, which are deemed discriminatory by the Republican Party.

The provision has aroused widespread concern on Wall Street, believing that it will seriously hinder foreign companies and individuals from investing in the US, mainly targeting countries that levy a digital services tax on US technology companies and implement the world's lowest corporate tax rate.

The market reaction was relatively stable. The Bloomberg dollar index fell for the fourth day in a row, US Treasury bonds rose, and the S&P 500 was approaching an all-time high — most of these trends were formed before the announcement of the agreement on Thursday evening.

Gennadiy Goldberg, head of US interest rate strategy at TD Securities, said, “Removing Section 899 from budget negotiations may be a source of relief for investors. However, it is still difficult to determine whether the market actually anticipates that this provision will eventually be enacted into law.”

The reason this provision, which was included in Trump's tax reform plan, is named “retaliatory taxation” because it only raises tax rates for countries that the US determines are implementing “discriminatory tax policies.”

Deputy Treasury Secretary Michael Falkend revealed to Bloomberg News on Wednesday that government officials are close to making “breakthrough progress,” which is expected to make the tax reform plan no longer necessary to retain this provision.

In the global corporate tax reform negotiations hosted by the Organization for Economic Cooperation and Development, some of the proposals were opposed by the US.

“Retaliatory taxation” points directly at the OECD's 15% global minimum tax plan — the plan was reached by former Treasury Secretary Yellen, who led negotiations during the Biden administration, but was criticized by Republican Party and Trump administration officials for harming US tax sovereignty. This global tax reform plan, which has been approved by more than 140 countries, requires multinational companies to pay at least a 15% tax rate in each place of operation.

In recent weeks, the Trump administration has continued to argue that the US tax system should be completely independent of the OECD's global tax reform framework, stressing that the current system already imposes strict taxation on US companies' overseas income.

Scott Semer, partner at Torys LLP in New York, said, “This is certainly good news for overseas investors who frequently invest in the US, and will definitely effectively enhance investment certainty.”