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The U.S. Federal tax bill removes the "revenge tax"

Published June 30, 2025
Michael Lawrence
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This article has been updated to reflect changes to section 899 as it progressed from the House of Representatives through to the Senate. Section 899, dubbed as a "revenge tax" has since been removed from the One Big Beautiful Bill Act. This was done after G7 member came to a "joint understanding" to exempt U.S. corporations from a 15% global corporate minimum tax.

House passes reconciliation bill

On Thursday, May 22, the U.S. House of Representatives passed the reconciliation bill by the narrowest of margins – one vote. The House bill focused primarily on extending provisions of the 2017 Tax Cuts and Jobs Act (TCJA). As part of the bill, the debt ceiling would also be raised to $4 trillion. While passing the House is an important milestone, the bill still had to make its way through the Senate where it would be subject to additional debate and potential revisions.

Section 899

The Trump administration has continued its tough stance on countries that it feels is taking advantage of the United States and its citizens. Section 899 of the One Big Beautiful Bill Act has introduced significant tax measures that target corporations, individuals and governments of countries that impose discriminatory taxes on US citizens and corporations by subjecting them to increased tax.

In the proposed bill, it authorizes the U.S. Treasury Secretary to designate any country that it deems imposes "unfair foreign taxes" on U.S. Persons, as a "discriminatory foreign country." Among the taxes that the Trump Administration has deemed unfair is the Digital Services Tax which Canada introduced in June 2024.

The Digital Service Tax (DST)

The DST requires foreign and domestic large businesses to pay a 3% tax on certain revenue earned from engaging with online users in Canada under certain conditions. Revenue earned that qualifies includes that from:

  • Online marketplace services
  • Online advertising services
  • Social media services
  • Certain sales of user data

The deadline for companies to file a DST return and make payments that cover tax years 2022 through 2024 is June 30, 2025. It is estimated that the Canadian Revenue Agency will collect more than $2 billion because of the implementation of this new tax. However, due to some last-minute demands from the U.S. administration, Canada has rescinded the tax to not derail trade discussion between the two countries.

How the proposed changes might impact Canadians and Canadian businesses

Withholding tax on U.S. dividend paying stocks

While Canada has a tax treaty with the United States, under the proposed legislation, Canadians and Canadian business could have seen a reduced realized after-tax return on U.S. income producing assets.

Under the current treaty, the withholding tax rate on individuals is reduced from 30% to 15% in certain accounts such as a non-registered account, tax-free savings account or first home savings account. For a registered retirement savings plan or registered retirement income fund, the withholding tax is reduced to 0%. Canadian businesses also see a benefit when earning dividends from their U.S. subsidiaries. Currently, the withholding tax rate that they pay is 5%.  

The proposed bill would have seen the withholding tax applied to individuals and businesses increase by 5% per year until the rate reaches 20% above the statutory rate of 30%. The Senate has altered this provision to a maximum of 15% above the statutory rate.

If the Republican-led bill had gone into law in its current form, it was unknown if this would override the tax treaty currently in place between the two countries. This would have ultimately made owning U.S. dividend paying stocks less attractive as the realized after-tax return would be diminished by the increase in taxes withheld by the U.S.

We do not recommend any action by investors

As Section 899 is now officially removed from this bill,  we do not expect any further efforts to have it reinstated. Investors should continue to hold a diversified portfolio of quality investments that aligns with their risk tolerance and allows them to reach their financial goals.

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