Treasury Strikes Deal to Scrap ‘Revenge Tax,’ Easing Wall Street Concerns

Key Takeaways:

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1. The U.S. Treasury reached an agreement with G-7 allies to exclude U.S. companies from OECD Pillar 2 global minimum taxes, eliminating the need for the controversial Section 899 “revenge tax” in President Trump’s tax bill.
2. Section 899, which targeted countries imposing digital services taxes and global minimum taxes on U.S. firms, was removed from the One, Big, Beautiful Bill Act at the request of Treasury Secretary Scott Bessent.
3. The deal ensures U.S. tax sovereignty while addressing concerns that the revenge tax would deter foreign investment in the U.S. and complicate global trade relations.
4. The market reaction was muted, with the S&P 500 nearing an all-time high, Treasuries rallying, and the Bloomberg Dollar Index declining for a fourth day.
5. The agreement reflects ongoing U.S. efforts to separate its tax system from the OECD’s global tax framework, which Republicans argue undermines U.S. taxing authority.

What Happened?

The U.S. Treasury announced a breakthrough agreement with G-7 allies to exclude U.S. companies from OECD Pillar 2 global minimum taxes, effectively nullifying the need for the Section 899 “revenge tax” in President Trump’s tax bill.

Section 899, proposed by House Republicans and supported by the White House, was designed to counter discriminatory tax policies targeting U.S. firms, particularly digital services taxes and global minimum taxes imposed by other countries. Critics warned that the measure could deter foreign investment in the U.S. and escalate trade tensions.

Treasury Secretary Scott Bessent requested the removal of Section 899 from the One, Big, Beautiful Bill Act, citing the new agreement as a resolution to the issue. Congressional tax committee chairs quickly complied, signaling bipartisan support for the deal.

Why It Matters?

The removal of Section 899 alleviates concerns on Wall Street about the potential negative impact of the revenge tax on foreign investment in the U.S. The measure had sparked fears of retaliatory actions from U.S. allies and uncertainty for multinational corporations.

The agreement also underscores the U.S.’s push to maintain tax sovereignty while navigating the complexities of global tax negotiations. By excluding U.S. companies from OECD Pillar 2 taxes, the deal protects American firms from additional tax burdens and ensures a more favorable environment for cross-border investments.

For investors, the resolution provides much-needed clarity and stability, particularly as markets approach record highs.

What’s Next?

The Treasury will work with the OECD-G20 Inclusive Framework to implement the agreement in the coming weeks, ensuring that U.S. companies remain exempt from global minimum taxes.

The broader implications of the deal will depend on how other countries respond to the U.S.’s stance on tax sovereignty and its separation from the OECD’s global tax framework. Analysts will also monitor whether the agreement fosters smoother trade relations or leads to further disputes over digital services taxes.

For now, the removal of Section 899 is seen as a win for both U.S. businesses and foreign investors, providing a more predictable tax environment.