Best eaten cold

Trump’s ‘revenge tax’ could lead to rather nasty unintended consequences

The Trump administration’s “revenge tax” (Section 899) has sparked major debate worldwide with a proposed 20% tax on U.S. dividends and other forms of investment income for some foreign investors, and the ripple effects could be huge. Learn more from Franklin Templeton Institute’s Stephen Dover.

The “One Big Beautiful Bill” tax bill that recently passed the U.S. House of Representatives and is now in the Senate includes a new retaliatory tax (section 899, the “revenge tax”), which is intended to stop other countries from imposing “unfair” taxes on U.S. companies.

What is unfair? Section 899 is trying to stop the Organisation for Economic Co-operation and Development’s global corporate-tax harmonization project. This project includes an excess-profits tax and a global minimum corporate-profits tax of 15% on mostly American technology and pharmaceutical companies.

Who would pay the 899 tax? Foreign individuals, corporations, governments, and sovereign wealth funds with a tax residence in countries identified as imposing unfair foreign taxes on U.S. businesses.

What assets are impacted? Section 899 would apply to dividend, royalty, rental, lease, and related forms of investment income. It does not appear to apply to interest income, whether on U.S. Treasury securities or credit fixed income assets (there is some ambiguity in the language). Capital gains are most likely excluded.

How much tax? The rate of tax on U.S. income paid to foreign investors from those countries would increase by 5% per year, up to the statutory rate plus 20%. For example, in the case of dividend income, where the statutory rate is 30%, a foreign investor benefiting from a 15% tax treaty rate on dividends could eventually see a tax increase from 15% to 50%.

Countries impacted: Countries with “unfair” taxes may include all European Union (EU) members, Canada, Australia, the United Kingdom, and South Korea, among others. Therefore, the tax will apply to most of the United States’ largest trading partners and many foreign investments.

Deterring foreign investment: These new taxes could deter foreign investment in U.S. assets, as higher taxes would reduce after-tax returns for foreign investors. At a time of U.S. dollar weakness, the timing of this announcement could accelerate divestment.

Global tax relations: By imposing retaliatory taxes, the United States risks escalating trade tensions and undermining international tax cooperation. The proposed language in the House version of the bill would give the U.S. Treasury (and by extension, the White House) considerable latitude to interpret what constitutes an “unfair” foreign tax on U.S. businesses.

Investment impact

Uncertainty surrounding this retaliatory tax has already unsettled financial markets. It could particularly impact equity markets, especially dividend paying stocks, as well as real estate investments that generate rental or lease income to foreign stakeholders.

Next steps: The tax bill is now with the Senate, where it may undergo revisions. Investors should closely monitor the legislative process, given the potential wide-reaching effects of this new tax.

Stephen Dover, CFA, is Franklin Templeton’s Chief Market Strategist and Head of the Franklin Templeton Investment Institute. Originally published in Stephen Dover’s LinkedIn Newsletter, June 4, 2025. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.

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