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This week, numerous executives from major global firms are heading to Washington to oppose a proposed tax increase on foreign investments in the US, expressing concerns that it could negatively impact millions of American jobs.
The lobbying effort is aimed at a specific part of Donald Trump’s budget proposal, which if passed by Congress, would permit the US to levy extra taxes on businesses and investors from countries regarded as having unfair tax regimes.
Section 899 of the bill may affect investors, US companies with foreign ownership, and international businesses with US operations, leading executives to worry about a potential decline in corporate investments and a withdrawal from US assets.
Jonathan Samford, president of the Global Business Alliance, mentioned to the Financial Times that representatives from around 70 companies are set to discuss Section 899 as a key issue with Congress members this week.
The prospect of increased taxes has unsettled nearly 200 foreign-owned firms in the lobby group, including Shell, Toyota, SAP, and LVMH, many of whom fear harm to the 8.4 million jobs they support in the US.
“There’s a growing effort to eliminate this section in the Senate,” Samford stated. “Senators are realizing that it undermines the administration’s economic goals, which stress the importance of attracting more investment to the US.”
A prominent financial trade group is also organizing for its members to meet with Treasury officials and Republican Senate banking committee members this week to contest Section 899.
Beth Zorc, chief executive of the Institute of International Bankers, argued that “As it currently stands, Section 899 will hinder foreign direct investment, pose threats to financial markets, and jeopardize American jobs nationwide.”
The operations of foreign banks in the US support over 70% of debt issued for foreign businesses in the US, making up nearly one-third of all dollar-denominated debt issued, according to the IIB.
These foreign banks reported that they lent over $1.3 trillion to US companies in 2023, and their financing activities for international firms facilitated $5.4 trillion in foreign direct investment by companies headquartered abroad, yielding $270 billion in revenue.
The IIB, which includes major banks like HSBC, BNP Paribas, Royal Bank of Canada, UBS, Bank of China, and Mitsubishi UFJ Financial, aims to advocate for a one-year postponement of the tax increases and to limit the measure’s scope.
“We urge the Senate to address the concerns regarding this section and explore changes that will help maintain international investment in American jobs and businesses,” Zorc conveyed to the Financial Times.
This provision targets nations the US considers to have “unfair foreign taxation.” Most EU countries, the UK, Australia, Canada, and several others would be impacted, according to legal firm Davis Polk.
For foreign investors, Section 899 could raise taxes on dividends and interest from US stocks and specific corporate bonds by 5 percentage points annually for four years. It would also impose taxes on the US investments of sovereign wealth funds, which are currently exempt.
In an effort to minimize the cost of Trump’s substantial tax proposal, Republicans in Congress have explored various strategies; Section 899 is projected to generate $116 billion over the next ten years, according to the non-partisan Joint Committee on Taxation. Nevertheless, the overall plan could contribute an additional $2.4 trillion to the US debt by 2034, per estimates from the Congressional Budget Office.
Jason Smith, chair of the tax-writing House Ways and Means Committee, expressed that he hopes Section 899 will not be enforced due to potential retaliatory actions from other nations.
“A significant concern is that foreign governments, based on agreements made by the Biden administration, may seek to draw away billions from US companies,” Smith remarked.
“This provision serves as a means to keep them accountable to understand that there will be repercussions for their actions against US businesses. We hope it won’t come into effect.”
