In this note, Stephen Jen and Joana Freire argue that Section 899—a proposed US tax on foreign passive income—shouldn’t be taken too seriously. They believe it’s more of a bargaining tool to pressure other countries into leveling the corporate tax playing field than an actual policy likely to be enacted.
They highlight that:
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Section 899 is unlikely to be enacted, and if it does, it will be narrow in scope and temporary in duration.
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Government bonds and capital gains are carved out, meaning foreign central banks and large investors will likely remain in US Treasuries.
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The motivations behind Section 899 are rooted in longstanding international tax tensions, including Europe’s digital services taxes and the OECD’s 15% minimum corporate tax.
Jen and Freire also propose that a global Tobin Tax—levied on foreign exchange transactions—would be a far more effective way to raise tax revenues without the collateral damage of Section 899 or tariffs. They estimate such a tax could generate up to USD1 trillion annually, with the US share potentially USD440 billion.
Key Quote
“We believe analysts may be taking Section 899 too seriously. Even if it is used, it will likely be limited in scope and temporary in duration.”
Table of Contents
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Bottom line
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The motivations behind Section 899
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What we know about Section 899
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Impact on capital flows into the US
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Global need for tax revenues and the Tobin Tax
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Appendix on Section 899
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