Following the passage of the One Big Beautiful Bill on 4 July, the US government under President Donald Trump implemented a far-reaching tax reform and demonstrated a surprising willingness to compromise on a key point: the originally planned introduction of Section 899 of the Internal Revenue Code – a fiscal penalty targeting ‘discriminatory’ foreign tax regimes – was removed from the bill at the last minute.
What was Section 899 about?
Section 899 IRC was aimed at countries that, from the US perspective, apply ‘unfair foreign taxes’ – in particular, the Digital Services Tax (DST) and the so-called Undertaxed Profits Rule (UTPR), a core element of the OECD’s global minimum tax framework.
Countries such as Germany, France and Italy, which have introduced or plan to introduce such measures, were to be included on a list of ‘discriminatory jurisdictions’ compiled by the US Treasury Department.
This would have led to substantial tax burdens for individuals and legal entities from those countries: US withholding tax rates on dividends, royalties, or rental income would have been progressively increased – by up to 50% – potentially overriding existing double taxation agreements (DTAs).
Why was Section 899 dropped? – A G7 compromise restores balance
The removal of Section 899 is the result of intensive negotiations between the US Treasury and the G7 member states.
On 28 June 2025, the G7 issued a joint statement outlining the key elements of the compromise, albeit in somewhat vague terms. According to the statement, US tax rules and the OECD’s minimum tax framework will coexist in a so-called ‘side-by-side’ arrangement.
Specifically, multinational corporate groups with US-based ultimate parent entities will be exempt from both the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR), provided they are already subject to minimum tax mechanisms under domestic US law. In return, the United States agreed to abandon the implementation of Section 899 – the so-called ‘revenge tax’.
This move has been widely interpreted as a positive signal for multilateral cooperation and investment stability. It represents a recognition by the US that unilateral fiscal retaliation would be counterproductive to global economic relations.
What does this mean for Germany and the EU?
For German companies with substantial US operations, the withdrawal of Section 899 comes as a significant relief – both in terms of tax planning certainty and the preservation of benefits under existing DTA frameworks.
Institutional and private investors in US assets are also likely to benefit, as the threat of sharply increased withholding taxes has been averted, at least for the time being.
At the same time, the G7 compromise places political pressure on EU member states to show flexibility in implementing the OECD’s minimum tax. While a wholesale exemption of US multinationals from the UTPR may be difficult to justify politically and legally within the EU, national governments may seek to make use of interpretative and administrative leeway in applying the rules – in order to respect the transatlantic understanding.
A lesson in transatlantic tax diplomacy
Although Section 899 will not be enacted, its trajectory serves as a lesson in the rising tensions between national sovereignty and multilateral tax cooperation. The US’s decision to step back from a confrontational approach opens up new opportunities for alignment – but also highlights the fragility of global consensus in tax matters.
Going forward, Europe will require a coherent, capable and internationally coordinated tax policy – not merely in response to Washington, but in pursuit of its own long-term fiscal and economic sovereignty.