Espen Ommedal
Marianne Brynjulfsen Overaa
Charlotte Heieren
The tax shift in the US following the Trump administration is in constant development. In this article we will describe the latest progress in the US regarding retaliating measures against jurisdictions having tax rules which the US finds discriminatory.
Background
As mentioned in our previous newsletter on the subject matter, the US under President Trump's administration expressed opposition to the OECD's Global Tax Deal, particularly Pillar II, which aims to ensure that the world's largest companies pay a minimum tax rate of 15 percent. This initiative includes rules such as the Income Inclusion Rule (IIR) and the Under-Taxed Payments Rule (UTPR), designed to prevent profit shifting to low-tax or no-tax jurisdictions.
New IRC Section 899
On May 22,2025 the House of Representatives passed the proposed Bill introducing new IRC Section 899. Section 899 aims to counter what the US considers discriminatory or extraterritorial taxes from other countries, including those that are part of Pillar II. The proposed Section 899 will expand the application of the BEAT rules (Base Erosion and Anti-Abuse Tax) and increase tax rates for certain foreign taxpayers.
Key Points of the New IRC Section 899
- Increase in Tax Rates: Tax rates for certain foreign taxpayers will increase by a "specified number of percentage points," starting at 5 percentage points and increasing by an additional 5 percentage points each year, up to a maximum increase of 20 percentage points. The increase applies to certain income taxes and withholding taxes, and is tied to the domestic tax rate. To illustrate, the US has a 30% domestic tax rate on dividends, while the tax treaty rate with Norway is 15%. A progressive increase in the tax rate, up to 20%, will apply to the domestic tax rate, not the treaty rate. This could result in a 50% US withholding tax on dividends paid to Norwegian investors. In the US, tax treaties and domestic laws are equally authoritative, meaning domestic law can set a tax rate regardless of the tax treaty.
- Definition of "Discriminatory Foreign Country": A discriminatory foreign country is defined as a country with one or more "unfair foreign taxes," including the GloBE Under-Taxed Payments Rule (UTPR), Digital Services Tax (DST), and Diverted Profits Tax (DPT). It is important to note that these proposed rules target jurisdictions that have the “unfair” rules in their statute – there is no requirement that the “unfair” rules apply to the business concerned.
It is proposed that a list is created of jurisdictions being considered as discriminatory, and that the list is reviewed annually. A country that has implemented UTPR will not necessarily be automatically listed, and it is expected that there will be grounds for negotiations with the relevant country. We would expect Norway, having implemented UTPR, to eventually be listed as discriminatory. - Application to "applicable persons": The proposed rules will apply for a list of "applicable persons". Foreign individuals and corporations tax resident of a discriminatory jurisdiction will be in scope of the rules.
- Exemptions: The bill does not affect certain types of income that are exempt from taxation, such as portfolio interest and bank deposit interest.
Effective date and Legislative status
The bill will take effect upon enactment, with tax increases applicable to tax years beginning on or after the later of (i) 90 days after enactment of Section 899, (ii) 180 days after the date of enactment of the unfair foreign tax that causes the country to be treated as a discriminatory foreign country, or (iii) the first date that the unfair foreign tax of that country begins to apply. The first option is most relevant for Norway.
The proposed bill has been approved by the US House of Representatives and is now under consideration in the Senate, where adjustments are common. It is expected that it will conclude its considerations by early July 2025.
Implications
If enacted, IRC Section 899 will put significant pressure on foreign countries to repeal or exempt U.S. headquartered groups from unfair foreign taxes and will deter foreign countries from implementing new unfair taxes.
We will continue to monitor the development of the proposed IRC Section 899 and its potential impact on international tax legislation. Please be aware that these changes may have significant consequences for Norwegian individuals and companies with ties to the USA.
