Section 899 ditched but companies face tax uncertainties

While Australian investors breathed a resounding sigh of relief when US President Donald Trump binned section 899 of the One Big Beautiful Bill Act (OBBBA), local multinationals, however, were lumped with grave uncertainties surrounding the global Pillar 2 tax regime. Karren Vergara reports.

- Karren Vergara

Australian investors, particularly superannuation funds, lunged into cartwheels upon the exclusion of section 899 in the OBBBA, which was cemented into law on July 4.

SW Accountants & Advisors associate director of tax Antony Cheung said the removal of section 899 was welcomed by Australian groups that invest and conduct business in the US.

"This is particularly relevant for superannuation funds taxed at 15% in Australia, where the additional US tax could not be credited and would have directly and immediately impacted investment returns," he said.

Section 899 would have affected long-term investments and confidence in investing in the US because of all the uncertainty, Cheung told Financial Standard.

"That may also lead to a change in investment strategy. For example, there may be a preference for high-growth stocks or stocks undertaking share buybacks as compared to dividend-paying stocks as dividends will be subject to these tax changes," he said.

There are now lingering issues post-carveout. These are namely the conditions behind the deal that forged the exclusion of section 899 that sits within the Pillar 2 tax — a proponent of the OECD/G20 Two-Pillar Solution for multinational businesses.

On June 27, US Treasury Secretary Scott Bessent said on social media platform X (previously Twitter):

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.

OECD Pillar 2 taxes will not apply to US companies, and we will work cooperatively to implement this agreement across the OECD-G20 Inclusive Framework in coming weeks and months.

I want to thank my G7 counterparts for their partnership and collaboration towards achieving this historic outcome.