A controversial tax clause that was set to increase the withholding tax burden on European investment funds holding U.S. stocks has been scrapped from President Donald Trump’s proposed “One Big Beautiful Bill Act” (OBBBA).
What Was at Stake?
The provision, known as Section 899, had alarmed asset managers and institutional investors across Europe. It was feared to disproportionately impact funds domiciled in Ireland and Luxembourg—two major European fund jurisdictions—which collectively manage over €800 billion in U.S. equity assets, according to Morningstar data from April.
Under current rules, U.S. dividend payments to foreign investors are subject to a 30% withholding tax, which can typically be reduced to 15% through bilateral tax treaties. Luxembourg and Irish funds benefit from such treaties, and many operate under structures that allow for tax reclaim mechanisms to minimize erosion of investor returns. Section 899 threatened to reclassify these funds in a way that could disqualify them from treaty benefits—effectively doubling the tax burden and severely impacting performance.
Political Leaders Confirm Clause Removal
In a joint overnight statement, House Ways and Means Chair Jason Smith and Senate Finance Chair Mike Crapo announced the withdrawal of Section 899 from the draft legislation:
“We have decided not to proceed with the inclusion of Section 899 and intend to work closely with the Treasury on the broader tax implications for cross-border investments.”
Linked to Wider Tax Policy Developments
The decision came shortly after Treasury Secretary Scott Bessent announced a new international tax accord under which the U.S. would suspend implementation of OECD Pillar Two rules. These global tax rules are designed to ensure that multinational corporations pay a minimum 15% tax in every jurisdiction in which they operate, regardless of where profits are reported.
“A Major Relief” for European Fund Managers
Adrian Whelan, global head of market intelligence at Brown Brothers Harriman, said the decision would come as “a huge relief” for asset managers with exposure to U.S. equities.
“It eliminates a significant compliance headache and preserves the treaty-based withholding tax reclaims that many funds rely on to maintain investor returns.”
Concerns Over Unpredictable U.S. Tax Policy
Whelan also cautioned that this episode reflects a new era of policy unpredictability:
“This is another example of how sweeping legislative proposals are being used as bargaining tools in broader political negotiations. The investment industry must remain agile—prepared to adapt quickly, but avoid knee-jerk reactions.”
The Complex Reality for Cross-Border Investors
Had the clause been enacted, withholding tax reclaims would have likely surged in volume and complexity. Claiming back excess tax on dividends often involves long waiting periods, extensive documentation, and varying interpretations by local tax authorities. U.S. legislative uncertainty would have further complicated compliance efforts and investor reporting.
What Comes Next?
While the immediate threat is gone, the situation serves as a reminder that international tax coordination remains a work in progress. Fund structures must remain nimble and tax-transparent, particularly as regulators and policymakers adapt to shifting geopolitical and economic priorities.
The Section 899 scare reinforces the need for proactive tax governance in global asset management. In an environment where cross-border tax policy is used as a negotiation lever, staying compliant is not just about following the law—it’s about anticipating change and preparing for volatility.
Our work focuses on providing outsourced withholding tax recovery services to safeguard your investments from over-taxation and save your time from burdensome processes.
