WASHINGTON, DC - APRIL 23: U.S. Treasury Secretary Scott Bessent delivers remarks during the ... More International Finance Institute Global Outlook Forum at the Willard InterContinental Washington on April 23, 2025 in Washington, DC. The forum is being held alongside the 2025 spring meetings of the World Bank Group (WBG) and International Monetary Fund (IMF). (Photo by Andrew Harnik/Getty Images) Getty Images There are myriad ways to express displeasure with international tax policy: you can file a complaint at the Organisation for Economic Co-operation and Development (OECD), leverage a charm offensive, or, if you’re looking for a quick fix, you can slap a retaliatory tax on foreign investors, spook the market, and call it a day. The Trump administration opted for the latter—albeit briefly—with the seemingly now-defunct Section 899 provision, branded by some as the “revenge tax.” This provision, tucked into the One Big Beautiful Bill Act, levied a targeted tax meant to punish countries that impose “discriminatory” taxes on American firms – particularly tech giants. Now however, after some handshakes and a flurry of posts on social media, it seems the revenge tax has been scrapped. Quietly scuttled, its political usefulness exhausted—for now. What Was the Section 899 “Revenge Tax?” At its core, Section 899 was a legislative jab aimed squarely at America’s trading partners. Buried in the GOP’s sweeping policy bill, the provision would have authorized the U.S. to impose punitive taxes on companies headquartered in countries that were, in the view of the Trump administration, treating American firms unfairly. The sweeping new section of the tax code would have been titled “Enforcement of Remedies Against Unfair Foreign Taxes”—not exactly a subtle start. Section 899 didn’t go after governments that it felt had treated U.S. firms unfairly, but instead targeted people and businesses with ties to “discriminatory foreign countries.” That included foreign individuals, corporations not majority-owned by U.S. persons, private foundations and trusts, and just about any other foreign partnership or structure that Treasury didn’t like the looks of. The goal was clear: foreign investors from offending jurisdictions were going to be made to feel real economic pain. The core mechanism was an annual ratcheting-up of tax rates by 5% on the U.S. income of “applicable persons” – everything from dividends and royalties to capital gains and even real estate sales. Exceptions were few – the legislation even explicitly overrode Section 892, which exempts sovereign wealth funds from taxation. MORE FOR YOU The triggering mechanism for the tax was any broadly-defined “unfair foreign tax,” which included the Undertaxed Profits Rule from OECD’s Pillar 2, Digital Services Taxes (DSTs), and any other tax Treasury later deemed discriminatory or deliberately burdensome to U.S. persons. In sum, it would have been sweeping. If passed, Section 899 would have been a weaponization of the tax code into a tool of transparent foreign policy enforcement. It would have marked a sea change in international tax policy, shifting tax rates away from economics and towards the punishment of deemed foreign policy sins. What Prompted this “Revenge?” Likely the most salient policy shift that triggered this revenge tax was the OECD’s Pillar 2. Championed by the Biden administration, Pillar 2 aims to impose a 15% global minimum tax on the profits of multinationals—regardless of where they are headquartered or what markets they serve. On paper, it was intended to end the race to the bottom of low-tax jurisdictions; in practice, it creates a complex web of policies and enforcement rules that can allow foreign governments to tax U.S. companies in situations where the U.S. does not. The Undertaxed Profits Rule allows other countries to claim the ability to tax if a company’s home jurisdiction does not sufficiently tax its own domestic entities. Think of it as a foreign state saying, well, if you aren’t going to tax your companies at 15%, we’ll gladly make up the difference for you. To the Trump administration, this was unacceptable—a path to the European Union skimming revenue from American companies. The final straw was likely the imposition of DSTs—levies aimed at the revenue of tech giants like Meta and Google, often imposed by European countries that have grown tired of waiting for the U.S. to sign on to Pillar 2. Of course, countries considering and ultimately passing DSTs were merely exercising their right to tax American companies selling into their markets—but that is neither here nor there. Why Section 899 Was a Problem—And Why It Died For all its bluster, Section 899 had one main flaw: it was bad policy masquerading as tough politics. From the moment the bill hit the docket, or more accurately folks found it swimming around in the One Big Beautiful Bill Act, alarms went off across the market. As it turns out, foreign investment doesn’t like uncertainty. Section 899 would have injected a lot of uncertainty into the foreign investment market. The tax hikes weren’t automatic, and there was no schedule that could be consulted by any one individual state; they turned on vague determinations like what was and wasn’t an “unfair tax.” Treasury could label a state a discriminatory foreign country based on opaque criteria and ramp up rates immediately—all without Congress lifting a finger. As is to be expected, trade groups warned of chilling effects on capital markets. Foreign governments viewed it as a backdoor sanctions regime. So it died – not with a bang, but with a post. Scott Bessent publicly called for the provision’s removal, citing diplomatic progress. The death of the Revenge Tax doesn’t mean this particular international tax skirmish is over, however, only that the battle was paused temporarily in favor of diplomacy. If global talks stall, or DSTs raise their heads again, no one should be surprised if a future Congress pulls out this playbook again. Editorial StandardsReprints & Permissions