Global: One Big Beautiful Bill impact on non-US persons with US investments or activities

Key takeaways

• Non-US persons with investments or activities in the US could be subject to a US tax increase of 5% on gross income generated from such investments or activities beginning 2026 and increasing by 5% annually up to a maximum 50% rate
• Non-US persons with operating subsidiaries in the US may be subject to increased Base Erosion Anti-avoidance Tax (BEAT) tax liability in the US

What is the proposed reform?

• An increase in the rate of US federal income tax on income generated on US investments by residents of a “discriminatory foreign country”
• A “discriminatory foreign country” is a country that imposes one or more “unfair foreign taxes”
• “Unfair foreign taxes” is defined widely and as a consequence it is expected that a large number of countries will be a “discriminatory foreign country”, including the UK, all of the EU countries, Australia, New Zealand, Canada, Turkey, South Korea, Japan, India, and others
• The reform proposes a scaled increase in current US tax on income from US investments, starting with a 5% increase in year one potentially scaling to a maximum aggregate tax rate of 50% on relevant US income, and as proposed the additional tax charge would apply on top of any current reduced rates that apply under income tax treaties
• Income within scope includes:
  • dividend payments from the US
  • interest payments from the US
  • royalty payments from the US
  • US branch profits
• US subsidiaries of companies that are organized in a discriminatory foreign country also may be subject to additional tax liability under the US “BEAT” tax rules

Who will it impact?

• The reform will have a wide impact, including:
  • non-US corporate groups with US subsidiaries or branches
  • non-US individuals with shares in US companies
  • non-US partnership structures with US investments
  • non-US lenders lending to US borrowers
  • foreign government entities such as sovereign wealth investors (it also looks likely that the new rules will disapply the US sovereign wealth exemption)
• The rules are likely to look through multi-tier ownership structures to the ultimate beneficial owners
• The tax increases will not apply to non-US corporate entities that are majority ultimately owned by US persons

When will it be introduced?

• The tax measure (known as section 899) forms part of the package of tax reforms passed by the House of Representatives in the One Big Beautiful Bill (OBBB)
• The legislation is now in the Senate where the wider bill is expected to be subject to significant modifications
• It is not yet known what impact the Senate process will have on the s.899 provisions outlined above
• If the s.899 provisions are passed in broadly their current form, the increased tax charge will apply from the tax year following the latest of:
  • 90 days after s.899 is enacted into law;
  • 180 days after a foreign country adopts a unfair foreign tax;
  • the first day the unfair foreign tax becomes effective.

Further reading

See our client briefings:

• Unpacking the big beautiful international tax provisions of the One Big Beautiful Bill
• House passes the One Big Beautiful Bill with minor revisions to the international tax provisions
• The One Big Beautiful Bill’s impact on investments in Business Development Companies (BDCs)

How can Eversheds Sutherland Help?

• Our US tax group are following this development closely and can advise on the potential application of the s.899 provisions
• Multiple factors will be relevant, such as whether a client is located in a “discriminatory foreign country”, whether it derives income subject to the increased tax and whether any exemptions apply
• Assessing the impact of these rules requires not only a US assessment, but also an assessment of whether relevant non-US jurisdictions have or intend to introduce “unfair foreign taxes”
• As the legislation progresses through the US Senate and there is greater clarity on the final form of the provision, it may be possible to consider structuring options to mitigate any impact
• In the meantime, those potentially affected should ensure that legal documentation allocating tax risk (such as gross-up provisions in finance agreements and IP licenses) is drafted to capture this new potential tax charge

Our US tax group are providing regular updates as the legislation progresses.  Should you want more detailed advice on the potential application of this new US tax rule, please reach out to either your usual tax group contact, or the contacts at the end of this briefing.