The U.S. Treasury Secretary announced on June 26 that an agreement has been reached with the nation’s fellow G7 countries (Canada, France, Germany, Italy, Japan and the UK) to exclude U.S. companies from Pillar 2 taxes under the Organisation for Economic Co-operation and Development (OECD) tax agreement, clearing the path for the U.S. Congress to pull back a threatened retaliatory tax regime known as Section 899.
Secretary Scott Bessent did not immediately provide further details of the deal, saying only that the U.S. “will work cooperatively to implement this agreement across the OECD-G20” in the “coming weeks and months,” and that it would eliminate the need for a provision in the Republican tax bill working its way through Congress that would impose higher taxes on companies from jurisdictions that have implemented certain “unfair foreign taxes,” including Pillar 2 taxes imposed under those jurisdictions’ respective undertaxed profits rule (UTPR).
Congress’s top Republican tax writers, Senate Finance Committee Chair Mike Crapo (R-Idaho) and House Ways and Means Committee Chair Jason Smith (R-Missouri), followed Bessent’s announcement with a short joint statement lauding the agreement and indicating they will remove proposed Section 899 from the One Big Beautiful Bill Act.
“At the request of Secretary Bessent and in light of this joint understanding to preserve U.S. tax sovereignty and allow U.S. tax laws to co-exist with the Pillar 2 regime, we will remove proposed tax code Section 899 from the One Big Beautiful Bill Act, and we look forward to active engagement with Treasury on these important issues,” they said, adding, “Congressional Republicans stand ready to take immediate action if the other parties walk away from this deal or slow walk its implementation.”
The proposed Section 899 would have introduced a two-pronged retaliatory regime: one component would have imposed additional income tax and withholding charges on payments made to persons tied to jurisdictions imposing unfair foreign taxes; the second would have expanded the application of the Base Erosion and Anti-Abuse Tax (BEAT) to companies owned by persons tied to those jurisdictions.
Grant Thornton will provide further insight as details of the agreement become clear.
For more information, contact:
Partner, International Tax
Washington National Tax Office
Grant Thornton Advisors LLC
Cory Perry is a partner in Grant Thornton’s Washington National Tax Office and has worked for more than 12 years in international tax.
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Managing Director, Tax Legislative Affairs Leader
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Storme Sixeas serves as the Tax Legislative Affairs leader for Grant Thornton’s Washington National Tax Office.
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