Proposed new IRC Section 899, which passed the House of Representatives as part of the One Big Beautiful Bill Act (OBBB) and is currently under Senate review, aims to impose increased U.S. tax rates on non-U.S. individuals, companies, and even foreign governments from “discriminatory foreign countries.” 

The purpose behind Section 899 is to retaliate against foreign tax regimes – such as digital services taxes (DSTs), undertaxed profits rules (UTPR) under the OECD’s Pillar Two framework, and similar measures – that are seen as discriminatory or extraterritorial in their impact on U.S. businesses and individuals.

Non-U.S. individuals, companies, and even foreign governments from discriminatory foreign countries – or entities that are substantially owned or controlled, directly or indirectly, by any of the before-listed persons – would face increased U.S. federal income tax rates – ranging from 5% to 20% – on:

• U.S. withholding taxes – Current standard rate:  30%
• Effectively connected income – Current standard rate: 21% for corporations and up to 37% for individuals and other non-corporate taxpayers
• FIRPTA withholding on U.S. real property dispositions – Current standard rate: generally, 15%
• U.S. branch profits tax – Current standard rate: 30%
• Foreign Governments Section 892 Exemption – Exemption would not apply to any government or governmental entity of a discriminatory foreign country

BEAT component

Section 899 also proposes to broaden the impact of Section 59A by:

• Including as “applicable persons” U.S. subsidiaries of foreign-parented groups from discriminatory foreign countries
• Raising the BEAT rate from 10% to 12.5% for these entities
• Limiting the use of certain tax credits to offset BEAT liability for affected entities
• Expanding the taxable base by eliminating certain exceptions to base erosion payments

Effective date

Proposed Section 899 would be effective on the date of the OBBB’s enactment. The rate increases and modifications to BEAT would apply to tax years beginning after the latest of (i) 90 days post-enactment, (ii) 180 days after the foreign tax is enacted, and (iii) the date the foreign tax takes effect.

What does CohnReznick think?

Proposed IRC Section 899 would impose significantly higher U.S. taxes on individuals, companies, and governments from countries with tax policies seen as unfair to U.S. businesses, targeting measures like digital services taxes and expanding BEAT rules. Affected entities and individuals should begin assessing their exposure, reviewing cross-border structures, and preparing for potential compliance and financial impacts.

Contact your tax advisor with any questions on the proposed Section 899 and how it would potentially impact your business.