International tax rules are poised for a significant change based on pending legislation. The One Big Beautiful Bill (OBBB), currently being negotiated in the Senate, would introduce a new rule — Section 899, Enforcement of Remedies Against Unfair Foreign Taxes. This was first introduced into the OBBB in the House and builds on concepts proposed earlier in 2025. More recently, the Senate Finance Committee released its amended version of the OBBB, which delays the application of Section 899 but otherwise keeps the framework in place. Looking ahead, Section 899 is expected to impact investors from foreign countries and increase tax burdens on individuals and corporations.
What is Section 899?
Section 899 is a direct response to the global tax deal from the Organisation for Economic Co-operation and Development (OECD). This new rule would introduce a framework to combat countries labeled as “discriminatory foreign countries” imposing one or more “unfair foreign taxes” on U.S. persons. In turn, Section 899 would increase tax and withholding rates on an annual basis for certain taxpayers associated with these countries. The Treasury Department would have authority to implement this rule by publishing a list of countries imposing unfair foreign tax and considered to be discriminatory foreign countries on a quarterly basis. Section 899 can also be read as a companion to reciprocal tariffs imposed by the Trump administration, given the common focus on arrangements that are considered unfair from a U.S. perspective.
What are unfair foreign taxes?
An “unfair foreign tax” is defined broadly in Section 899 but would specifically include:
- Digital services taxes (DSTs)
- Diverted profits tax (DPT)
- Undertaxed profit rule (UTPRs)
An unfair foreign tax would also include any extraterritorial, discriminatory, or any other tax enacted with a public or stated purpose to be economically borne directly, indirectly, or disproportionately by U.S. persons. These provisions would likely give Treasury additional flexibility, as new global taxing regimes continue to evolve to make assessments beyond the taxes initially defined in the House bill.
Approximately 30 countries have implemented the UTPR, which is a key component of the Pillar 2 global minimum tax framework adopted by the OECD to ensure a global minimum rate of tax of 15%. Currently, there are several countries, including Canada, that have adopted DSTs with many others proposing the application of these taxes, meaning the list of discriminatory foreign countries should Proposed Section 899 be finalized will likely be sizeable, encompassing major U.S. trading partners, and thus having broad sweeping application for multinational and foreign taxpayers.
The tax is expected to apply to several categories of income, including:
- Fixed, determinable, annual, or periodical (FDAP) income subject to withholding, including interest, dividends, rents, royalties and compensation for personal services.
- Effectively connected income (ECI) derived from active business profits of a nonresident alien individual and a foreign corporation.
- Tax and withholding under FIRTPA (the Foreign Investment in Real Property Tax Act) derived from selling U.S. real estate or U.S. real property holding companies.
- Branch profits tax.
Tax rates and implementation timeline
The House bill would increase the specified rate of tax by an “applicable number of percentage points” that would start at 5% for the first tax year following the “applicable date” and continue to increase by 5% each one-year period for which Section 899 is applicable. Overall, the proposal would provide that the total percent increase is capped at 20%.
Should the House version of Section 899 be enacted the applicable date would be the first tax year beginning on or after the later of three dates:
- 90 days after the date of enactment of Section 899.
- 180 days after the date the unfair foreign tax is passed into law by a foreign country.
- The first date that the unfair foreign tax begins to apply.
As noted, many countries have already adopted legislation as of 2024 and 2025 for what would considered under the House bill definition to be an “unfair foreign tax.” Therefore, should Section 899 be enacted later in the year, the increased rate of tax could apply as of Jan. 1, 2026, for a calendar year taxpayer.
Notably, the Senate Finance Committee Text would replace the 90-day language stated above with a one-year period. That revision would generally provide that the increased rate of tax could apply as of Jan. 1, 2027, for a calendar year taxpayer. The Senate Finance draft would retain the 5% annual increase in specified rate of tax but would limit the total percent increase to 15%.
Impact of tax treaties on tax rate increases
The interaction of tax treaties with Section 899 is a continuing subject of commentary. The House Bill would impose an increased specified rate of tax after applying the applicable treaty. For example, where a double tax treaty would reduce a U.S. withholding rate to zero percent for dividend payments, proposed Section 899 would add an additional 5 percentage points in the first year following the applicable date. As the bill moves through the Senate and is subject to continuing negotiation between the chambers, the interplay with longstanding preexisting tax treaties will certainly be an area of further commentary and focus.
BEAT modification, referred to as “Super BEAT”
Section 899 would also modify the application of the base erosion and anti-abuse tax (BEAT) for corporations owned directly or indirectly by greater than 50% vote or value by a country that imposes an unfair foreign tax. In these situations, BEAT would apply as follows:
- Without regard to the general BEAT applicability thresholds related to annual gross receipts and the base erosion percentage limitation. This change is likely to impact taxpayers with foreign ownership that generate less than $500 million of U.S. source gross receipts that weren’t previously impacted by BEAT.
- Using a 12.5% BEAT rate (as opposed to the 10% rate), and without the benefit of general business, is allowed under chapter 1 of the code. The inclusion of this was notable as the House bill extended a provision to allow certain credits to offset a BEAT tax liability outside of taxpayers subject to these “Super BEAT” provisions.
- Without exclusion for amounts on which tax is imposed or withheld or payments for services eligible for the services cost method under Section 482 — the “BEAT SCM Exception.” Many taxpayers utilize this exception to limit their BEAT liability only to markup on these payments and are likely to face a significant increase in their potential liability.
The Senate Finance Committee text would maintain much of the House-proposed Super BEAT. The text also made changes to BEAT, including increasing the tax rate to 14%, providing a high tax exception for payments sufficiently taxed in the foreign jurisdiction at least 18.9%, and limiting the base erosion applicable threshold from 3 to 2%. The high tax exception wouldn’t be applicable for taxpayers subject to Section 899.
The Super BEAT provisions would continue increasing the BEAT tax rate to 14% and reduce the base erosion applicable threshold from 2 to 0.5%.
Taxpayers should model the effects of these changes, evaluate changes to their structure, and continue to monitor the legislation as the adjustments pass through. Section 899 is sure to receive additional commentary from various foreign investors and governments, and it remains to be seen if reactions create adjustments to the global tax landscape and the repeal of these “unfair foreign taxes.”
