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Compliance June 17, 2025
Investors Concerned About the Big, Beautiful Bill’s Section 899
Experts say the provision, which would raise taxes on the U.S. income of foreign businesses and individuals, is likely to hurt capital markets.
Reported by James Van Bramer
A provision in the Republican Party’s expansive tax bill, part of the agenda set by President Donald Trump, intends to raise taxes on foreign investments in the U.S., which investors say will hurt capital markets.
Known as Section 899, the provision targets dividends, interest, royalties and business profits earned by individuals and institutions based in certain foreign countries. It begins with a five-percentage-point surtax and ramps up to 20 points above current rates—potentially pushing the total tax burden on some income to 50%.
One exception to the tax is that interest from U.S. Treasurys is not taxable for foreign investors, and the bill does not seem to include a clause to change that. Section 899 would, however, remove exemptions on non-U.S. central banks and other governmental entities from taxation on some U.S.-based investment income.
The provision would raise $116 billion in tax revenue over 10 years, according to the congressional Joint Committee on Taxation.
‘You Hit Us, We Hit You Back’
However, investors fear the bill would threaten foreign investments in the U.S., while also influencing countries to invest in other markets to avoid the tax.
“Foreigners own about $60 trillion in U.S. assets. U.S. equities make up almost half of global market cap—so deterring those investors could be damaging,” says Boris Peresechensky, principal portfolio manager at Orange Investment Advisors LLC.
According to an April report by Torsten Slok, Apollo Global Management’s chief economist, foreigners own nearly $19 trillion in U.S. equities, $7.2 trillion in U.S. Treasurys and $4.6 trillion in U.S. corporate credit investments, equating to 20% of U.S. equities, 30% of Treasurys and 30% of outstanding credit, respectively.
“It definitely fits Trump’s policy of reciprocal tariffs—you hit us, we hit back,” says Philip Ludvigson, a partner in King & Spalding LLP, where he advises clients on national security risks related to foreign direct investment. “But it also seems a bit at odds with parts of the America First investment policy to the extent that it hinders our traditional open investment policy and the notion of encouraging investment in the U.S.”
Foreign Investors ‘Likely to Retreat Quickly’
The Investment Company Institute, the leading association representing U.S. investment funds, wrote a letter to Senate Finance Committee Chairman Mike Crapo, R-Idaho, warning that the bill would hurt most foreign investments in U.S. stock markets, according to the obtained by CIO.
“In order to avoid the impact of section 899, portfolio investors are likely to retreat quickly from U.S. equities, leading to capital outflows from the United States,” the ICI’s letter, dated June 5, stated. “If sustained selling by foreign investors depresses U.S. equity markets, this would harm both U.S. companies and investors.”
The letter also warned the legislation could cut into management fees if foreign investors pull out of U.S. markets.
Peresechensky says one workaround for multinationals might be issuing bonds outside the U.S. to avoid the tax, which could shrink U.S. debt markets, and U.S. companies could respond with more stock buybacks instead of dividends to avoid the tax burden on foreign investors.
‘Game of Chicken’
Ultimately, if foreign investors seek to avoid the tax, the U.S. will likely raise less tax revenue, he says.
“20% on top of current withholding rates would be effectively a 50% tax—way too punitive for many foreign investors,” Peresechensky says. “You might end up collecting less, not more, tax revenue—especially if foreign investors reroute funds back home or shift to accounting tactics to avoid U.S. taxes.”
Ludvigson says the bill could further hurt foreign investment in U.S. markets, since countries not subject to the tax might also pull back on investing in the U.S. fearing they might eventually face a tax as well.
Section 899 resembles the Trump administration’s characterization of global trade policies which he has deemed unfair. Experts, however, believe the tactic will again be used as a negotiation tool and not end up in the final bill, for which the Senate has set a July 4 deadline.
“It’s a game of chicken, just like with tariffs: You threaten, you pressure, you try to change the other side’s behavior,” Ludvigson says.
