U.S. Treasury Secretary Scott Bessent talks to reporters at the Capitol in Washington on Tuesday.J. Scott Applewhite/The Associated Press
U.S. Treasury Secretary Scott Bessent announced Thursday that he had asked Republicans to pull what has been called the “revenge tax” from President Donald Trump’s signature tax bill, after an agreement among G7 countries.
Republican Senators quickly agreed to remove the revenge tax, Section 899 of the legislation.
The proposed tax measure was a major concern for a broad range of Canadian investors and had caused some on Wall Street to speculate that it could chase away foreign investment in the United States.
The original version of the bill would have allowed the U.S. to impose levies in response to what it calls “discriminatory or unfair taxes” in foreign countries, including Canada’s digital services tax, which was introduced in 2024. The first DST payment is due just days from now, on June 30.
It also took aim at a global minimum tax deal reached in 2021, in which many countries, including the U.S. under then-president Joe Biden, backed a push by the Organization for Economic Co-operation and Development to tax companies at a rate of at least 15 per cent no matter where they were headquartered. But the U.S. never implemented such a tax, and the idea was opposed by Republicans.
“After months of productive dialogue with other countries on the OECD Global Tax Deal, we will announce a joint understanding among G7 countries that defends American interests,” Mr. Bessent said Thursday in a post on X, as he announced the decision to remove the revenge tax. Mr. Bessent did not make specific reference to the DST.
He said G7 countries will work with countries in the G20 and the OECD to implement the agreement over the coming weeks and months.
“This understanding with our G7 partners provides greater certainty and stability for the global economy and will enhance growth and investment in the United States and beyond,” he said.
The Associated Press reported that Senate Finance Committee Chairman Mike Crapo and House Ways and Means Committee Chairman Jason Smith said they would remove Section 899 from the bill.
Canada’s Finance Minister, François-Philippe Champagne, responded positively to Mr. Bessent’s statement on X, but did not provide further detail as to what the change would mean for Canada.
“At our last G7 Finance Ministers and Central Bank Governors meeting we agreed to work together to restore greater stability and predictability for the world economy. We welcome Sec. Bessent’s work to have Section 899 removed from consideration in the bill before Congress,” he said.
The G7 did not release a statement Thursday. Mr. Trump’s One Big Beautiful Bill, the sprawling piece of legislation that would extend his 2017 tax cuts and implement much of his domestic agenda, continues to be debated in Washington.
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Mr. Trump has said that he wants the bill finalized for his approval by the fourth of July, a timeline that his press secretary, Karoline Leavitt, repeated Thursday.
In recent weeks, Canadian wealth managers have warned of potential U.S. tax hikes on foreign investors based on the provisions of Section 899.
As originally worded, the provision would have increased the U.S. tax rate for Canadian companies and other international investors. It could have cost Canadian investors who own U.S. securities up to $81-billion in additional taxes over seven years, according to an estimate by the Securities and Investment Management Association.
The Canadian Chamber of Commerce also warned that the bill could result in Canadians’ retirement savings being withheld to pay U.S. taxes, as retaliation for Canada’s digital services tax or other provisions related to undertaxed profits or a global minimum tax.
That’s because Section 899 could have imposed withholding taxes on hundreds of billions of dollars of U.S. investments held by government-sponsored pension-fund managers in Canada.
David Pierce, the Chamber’s vice-president of government relations, said it in a statement that the U.S. move was a positive one.
“Section 899 was bound to escalate the consequences of this trade war for consumers, investors, pensioners, and businesses. We are glad to see the U.S. administration de-escalating, and we hope this leads to further co-operation at the international level,” he said, adding that the chamber still believes Canada should drop its DST in response to the “olive branch” from the U.S.
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Canadian tax experts say Mr. Bessent’s comments leave many questions unanswered as to what exactly has been proposed.
Canada and other members of the OECD have been negotiating for years about acting together on tax reform related to multinational corporations.
The talks have been divided into two pillars. Pillar one has generally focused on issues such as digital services taxes, where a country would collect taxes on the profits of services provided by a multinational in that country. This would affect businesses such as Netflix, Disney and other streaming services.
Pillar two has focused on the idea of a global minimum corporate tax in an effort to address concerns that countries are in a race to the bottom to compete with each other through lower taxes.
Mr. Bessent’s statement only referred to pillar two and did not mention pillar one.
Canadian tax experts say it’s unclear what this latest development means for the continuing tension between the U.S. and Canada over its DST.
It is possible that the DST could be an issue for negotiation in the planned summer negotiations between the two countries on trade.
Allison Christians, the H. Heward Stikeman Chair in Tax Law at McGill University, said more details need to emerge before the full implications can be understood.
“The original bill could have increased taxes Canadians pay on certain U.S. investments every year until Canada relinquished its digital services tax and its application of global minimum corporate taxes to U.S. companies,” she said.
“All I know is that they’re saying that we’ve agreed to something that seems to exempt the U.S. companies from a global minimum corporate tax, and I don’t understand whether that also means U.S. companies won’t have to pay digital services taxes.”
Prof. Christians said it was debatable whether the U.S. bill’s provisions would have applied in Canada anyway.
“We’re in such a state of flux,” she said.
Brian Ernewein, a senior adviser at KPMG and a former senior tax official with the federal Finance Department, said many clients have been concerned about the potential implications of the revenge tax.
“It’s a very positive result that 899 has come off,” he said in an interview. “There was high anxiety about it.”
Mr. Ernewein reviewed Mr. Bessent’s statements, but said it is unclear what exactly the G7 agreement involves.
“There are a lot of questions as to what that means,” he said.
With a report from Clare O’Hara in Toronto