The European fund industry could finally breathe a sigh of relief as Congressional Republicans agreed to Treasury Secretary Scott Bessent’s request to axe the “revenge tax clause” in the proposed section 899 of the “One Big Beautiful Bill Act” on June 26, 2025. This decision has been made after the U.S. Treasury announced that it reached an international tax agreement on the removal of OECD Pillar 2 taxes for U.S. corporations on June 26, 2025.
The withdrawal of section 899 is not only a relief for the investment industry, but also a relief for investors, since the proposed clause would have led to a significant increase in withholding tax (+20 percentage points over the course of four years), and therefore possibly lower returns for European domiciled funds and ETFs investing in U.S. equities.
The decision to drop section 899 also ends a period of uncertainty, as there was only a vague determination of what constituted an “unfair or discriminatory tax” against U.S. corporations. In addition, the proposed tax hikes were not automatic and there was no schedule on when the tax hikes could be implemented. These uncertainties around future taxation might be one of the reasons why European investors started to invest in Europe, as estimated net flows indicate that European investors increased their positions in mutual funds and ETFs with an investment focus on Europe over the course of the first five months of 2025.
That said, it will be interesting to see if the fund flow trend in Europe will change in the near future after the insecurity around taxation treatment of foreign investors in the U.S. is gone.
This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of Lipper or LSEG.
