Retire in 40sUS House Reconciliation Bill Section 899: Impact and Outlook for Foreign Investors
This morning on my way to work, I heard news that analysts from Barclays bank have examined how Section 899 of the US House reconciliation bill under discussion might affect foreign investors.
The bill is titled 'Enforcement of Remedies Against Unfair Foreign Taxes,' and it is explained by dividing into three main points.
Firstly, Barclays expects that foreign investors will be relatively less affected by Section 899.
Specifically, interest income from US debt securities such as US Treasury bonds, government agency bonds, and corporate bonds will not be impacted.
Also, capital gains foreign investors earn from US stocks, meaning profits from buying and selling shares, are not significantly related to this bill.
However, dividend income is different; higher tax rates may apply to dividends paid by US companies.
Here, dividends refer to the portion of a company's earnings distributed to its shareholders.
The second key point is the 'Super BEAT' provision, an expanded version of the existing BEAT (Base Erosion and Anti-Abuse Tax).
BEAT is a policy intended to impose more tax on revenues that foreign multinational corporations earn in the US.
If this provision applies, industries such as manufacturing, finance and insurance, professional technical services, wholesale trade, and information services may be heavily impacted.
In simple terms, foreign companies operating in the US will face a higher tax burden, reducing their net income.
Thirdly, Barclays assesses that Section 899 is very likely to be included in the final version of the reconciliation bill.
The US Treasury Secretary has recently actively defended this provision in Congress, but the Senate might make slight amendments and possibly delay enforcement by one year.
The delay is intended to give the Trump administration time to negotiate tax-related issues with foreign governments.
Lastly, the bill is expected to grant the US Treasury broad discretionary authority over enforcement.
How the Treasury actually implements it could influence market impact.
Personally, I don't think this news suggests an extreme scenario where foreigners completely withdraw from the US bond and stock markets.
However, increased tax burdens on dividends could affect investment strategies somewhat, and the environment for foreign companies doing business in the US may become more challenging.
Considering the important role foreign companies play in the overall US economy, it will be important to closely monitor whether this provision is enacted and its detailed content.