Section 899: The “Unfair Foreign Tax” Provision That Was Removed for US Expats
UPDATE: July 4, 2025 – The controversial Section 899 “retaliatory tax” proposal has been completely eliminated from the final tax legislation. President Trump signed the “One Big Beautiful Bill Act” into law on July 4, 2025, without Section 899, confirming that this threat to American expats has been permanently removed.
The elimination of Section 899 represents a major victory for Americans living abroad, particularly those in countries with digital services taxes. After Treasury Secretary Scott Bessent reached an agreement with G-7 allies in late June, Congress removed the provision entirely from the final bill.
What Section 899 Would Have Done
The proposed Section 899, “Enforcement of Remedies Against Unfair Foreign Taxes,” was a retaliatory measure targeting specific international tax policies. The provision aimed to increase US tax burdens for individuals and entities connected to countries imposing what the legislation defined as “unfair foreign taxes.”
Target Taxes
Section 899 specifically targeted:
- Undertaxed Profits Rule (UTPR) from the OECD’s Pillar 2 framework
- Digital Services Taxes (DSTs) imposed on US tech companies
- Diverted Profits Taxes (DPTs) are designed to capture profits shifted abroad
- Other taxes deemed extraterritorial or discriminatory against US persons
Countries That Would Have Been Affected
Any country imposing these taxes would have been labeled a “discriminatory foreign country” or “offending foreign country,” triggering enhanced US tax obligations for Americans living there. This would have included major expat destinations like:
- United Kingdom (digital services tax)
- France (digital services tax)
- Canada (digital services tax)
- Italy (digital services tax)
- Spain (digital services tax)
- Austria (digital services tax)
- Australia (Pillar 2 implementation)
How It Would Have Affected US Expats
Increased Tax Rates
The provision would have imposed escalating tax rate increases on Americans in affected countries:
- 5 percentage point increase for each year a country remained on the list
- Maximum 15-20 percentage point increase above standard statutory rates (depending on House vs. Senate version)
- Applied to various income types, including dividends, interest, and other investment income
Modified Tax Benefits
Several current expat benefits would have been restricted:
- Enhanced BEAT rules for US subsidiaries of foreign companies
- Reduced Foreign Tax Credit effectiveness in some situations
- Loss of certain treaty benefits for affected taxpayers
- Potential impact on foreign spouse’s US investments
Compliance Complexity
Expats in targeted countries would have faced:
- Additional reporting requirements
- Complex calculations for rate increases
- Uncertainty about qualification criteria
- Potential retroactive applications
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Real-World Impact Examples (That Won’t Happen)
- Example 1 – Corporate Expat in France: An American working for a French company would have faced higher US tax rates on US-source investment income if France remained on the discriminatory country list.
- Example 2—Entrepreneur in the UK: A US expat running a business in the UK might have noticed increased withholding rates on payments from US clients or investments.
- Example 3 – Retiree with US Investments: An American retiree in a targeted country could have faced higher taxes on Social Security benefits, dividends, or retirement account distributions.
The good news: None of these scenarios will occur because Section 899 was removed from the final legislation.
Why Section 899 Was Removed
The Treasury Department’s agreement with G-7 allies in June 2025 achieved several key outcomes that led to Section 899’s elimination:
- US companies are excluded from certain foreign taxes under Pillar 2
- Negotiated relief from digital services taxes for US businesses
- Reduced international tax tensions between allies
- Maintained cooperation on global tax coordination efforts
Treasury Secretary Bessent’s announcement confirmed that “under the G7 agreement, the 15% global corporate minimum tax will not apply to U.S. companies under ‘Pillar 2’ of the Organization for Economic Cooperation and Development tax deal.”
Congressional leaders from the House Ways and Means Committee and Senate Finance Committee agreed to remove Section 899 from the final bill, which was passed and signed into law on July 4, 2025.
Current Expat Tax Protections Remain Strong
With Section 899 eliminated, existing expat tax benefits continue unchanged and strengthened:
Foreign Earned Income Exclusion (FEIE)
- Exclude up to $130,000 in foreign-earned income for 2025
- Best for expats in low-tax countries
- Requires meeting physical presence or bona fide residence tests
- Learn more about FEIE
Foreign Tax Credit (FTC)
- Dollar-for-dollar credit for foreign taxes paid
- Often eliminates US tax liability completely
- Ideal for expats in high-tax countries
- Understand Foreign Tax Credit benefits
Tax Treaties
- Reduced withholding rates on various income types
- Specific benefits vary by country
- Protection against true double taxation
Additional Protections in the New Law
The “One Big Beautiful Bill Act” also made the Tax Cuts and Jobs Act provisions permanent, providing:
- Stable, lower tax rates (10%-37%)
- Increased standard deductions
- Enhanced Child Tax Credit ($2,200 per child)
- Higher estate tax exemptions
Lessons for US Expats
The Section 899 situation highlights several important points for Americans abroad:
Stay Informed About Policy Changes
International tax policy can change rapidly, affecting expat obligations. Legislative proposals may impact your specific situation based on your country of residence.
Maintain Compliance
Despite political developments, staying current with US tax obligations protects your interests and preserves access to available benefits.
Understand Your Country’s Tax Policies
Knowing your host country’s international tax positions helps you anticipate potential impacts on your US tax situation.
Work with Experienced Professionals
Complex international tax issues require expertise in US law and global tax developments.
Planning for Future Certainties
With Section 899 eliminated and the TCJA made permanent, expats now have greater certainty for tax planning:
- Stay compliant with current US tax obligations using proven protections
- Take advantage of the $130,000 FEIE for 2025
- Optimize your use of Foreign Tax Credits and treaty benefits
- Plan confidently with stable tax rates through 2030 and beyond
- Maintain detailed records of foreign taxes paid and income sources
Peace of Mind Through Professional Support
We’ve helped over 23,000 expats achieve peace of mind knowing their taxes were done right. Our comprehensive expertise covers individual and business tax preparation, backed by our Make It Right guarantee.
Many clients tell us they were genuinely relieved to find Greenback and feel confident about their tax situation as expats. A genuine service mindset isn’t something that can be copied, only demonstrated year after year through consistent, accurate service.
With Section 899 now permanently off the table, we can focus on helping you maximize your available benefits and maintain compliance without worrying about retaliatory taxes.
Your Next Steps
With Section 899 eliminated and tax certainty restored, here’s what you should do:
- Review your current compliance status and catch up on any missed filings
- Optimize your use of FEIE and Foreign Tax Credit for your situation
- Take advantage of the permanent TCJA benefits and higher standard deductions
- Stay informed about ongoing developments in residence-based taxation proposals
- Consult with experts who understand both current law and help you plan for the future
Get Professional Help
No matter how late, messy, or complex your return may be, we can help. You’ll have peace of mind, knowing that your taxes were done right.
Contact us, and one of our customer champions will gladly help. If you need specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.
This article provides general information and should not be considered specific tax advice. Tax laws are complex and subject to change. Always consult with a qualified tax professional regarding your specific situation.
