There is some alarm brewing among non-U.S. investors about their allocations in the U.S. capital market. Trump’s Big Beautiful Bill (BBB) contains-in its ill-counted 1,000 pages-Section 899, passed last week by the House of Representatives which would allow the U.S. to impose additional taxes on companies and investors from foreign countries that the U.S. government deems to have punitive tax policies against the U.S.
Of course, the key question is, who are the targets of this measure? These would be foreign investors, but also U.S. companies with foreign owners and the international companies with U.S. subsidiaries. More difficult remains to understand what these “punitive tax policies” are that would nominate the investor for the tax. It seems to be understood that they are discretionary criteria that would give the star-studded executive an additional weapon of threat similar to tariffs. However, it is a safe bet that EU, Canada, and the UK who want to apply the “web tax” to U.S. tech giants are the perfect targets for this measure.
And then the object of this measure remains to be understood. Section 899 would increase taxes on dividends and interest on U.S. stocks and some corporate bonds by 5 percentage points each year for four years. It would also impose taxes on U.S. portfolio holdings of sovereign wealth funds, which are currently exempt.
It is not specified whether interest on Treasuries-currently exempt from tax for foreign investors-would be subject to the tax or not (generating further uncertainty). While tariffs could have short-term negative effects for those who suffer them and could-even sensibly-be part of a greedy strategy of purely negotiating bias in favor of the United States, a tax on government bonds would have immediate negative effects. One need only look at the graphs that follow:
It is about the U.S. public debt that needs to be refinanced and its cost. Trivially, investors should be incentivized not “tarred.” Not to mention that in general the capital market and thus foreign investment in the U.S. would be undermined by going to nullify the benefits to which eventually the tariffs should lead: moving some of the production to the United States. This really seems to be an idiosyncrasy. We are not interested in being exegetes of the thoughts, tactics, and strategies (if any) of the U.S. administration, but this infamous Section 899-unless it is yet another bluff-will have an immediate impact on portfolios and is therefore an issue to be closely watched.
Disclaimer
This post expresses the personal opinion of the Custody Wealth Management staff members who wrote it. It is not investment advice or recommendations, personalized advice and should not be considered as an invitation to conduct transactions in financial instruments.
