American fund managers are pressing Congress to revise a tax provision in President Donald Trump’s tax bill, warning it could prompt foreign investors to quickly pull their money out of U.S. markets.
The provision, known as Section 899, is part of the “One Big Beautiful Bill Act,” which passed the House in May and is now under Senate review.
Section 899 aims to impose retaliatory taxes on companies from countries that levy what the U.S. calls “unfair foreign taxes,” such as digital services taxes and OECD global minimum tax rules.
The tax would start at 5% and increase annually by 5 percentage points up to 20%, adding to existing taxes that vary by country and treaty.
This could reduce returns for foreign investors in U.S. stocks, including those from the EU, UK, Canada, Australia, and Switzerland.
The Investment Company Institute (ICI), representing U.S. fund managers, sent a letter to Senator Mike Crapo, chairman of the Senate Finance Committee, on June 5. The ICI warned that Section 899 could lead to a rapid retreat of foreign portfolio investors from U.S. equities, causing capital outflows that would hurt both U.S. companies and investors.
The group described the U.S. fund management industry, which manages about $18 trillion invested in U.S. stocks, as “collateral damage” of the provision.
The ICI urged Congress to clarify the bill’s language to avoid discouraging foreign investment through investment funds such as U.S. mutual funds, ETFs, and their foreign equivalents. They pointed out that Section 899 would tax passive income from U.S. equity investments, penalizing funds and their shareholders unintentionally.
Foreign investors currently hold $19 trillion in U.S. stocks, $7 trillion in government bonds, and $5 trillion in credit, according to Apollo Global Management.
The ICI supports protecting U.S. business interests overseas but cautions that the bill in its current form could backfire by driving capital away from the U.S. Some foreign governments might even welcome this capital flight as it would benefit their local markets.
Yuri Khodjamirian, chief investment officer at Tema ETFs, noted that European investors focused on dividend-paying U.S. companies would reconsider their holdings if taxed on dividend income.
However, he added that the overall impact on the U.S. equities market might be limited since many U.S. companies favor share buybacks over dividends.
The Senate Finance Committee and Senator Crapo’s office did not comment on the matter.
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