Revenge Tax: Truly Dead, or Just a Zombie?

One of the notable removals from the final version of the One Big Beautiful Bill Act (OBBBA) was the IRC Sec. 899 “revenge tax.” This provision was designed as retaliation against foreign taxes imposed upon U.S. entities that the Trump Administration deems to be discriminatory or an erosion of U.S. tax sovereignty. In particular, IRC Sec. 899 targeted digital services taxes and the Organization for Economic Development and Cooperation (OECD) global tax framework negotiated by the Biden Administration.

On June 26, 2025, Treasury announced a “shared understanding” between the U.S. and the other Group of Seven (“G7”) countries that a compromise on implementation of these types of taxes was possible. While the agreement prompted the removal of IRC Sec. 899, it was made clear that it could return if negotiations were to stall. Accordingly, it is important to understand the background of the taxes IRC Sec. 899 sought to address, how it was meant to accomplish its goals, and what could happen next.

OECD Global Tax Framework and Digital Services Taxes

In 2021, the OECD, together with the U.S. and delegations from most advanced economic nations, negotiated a global tax framework. One of the major pieces of that framework (referred to as “Pillar Two”) was a series of recommended rules for each country to adopt, to ensure that large, multinational companies face a global minimum tax.

Pillar Two has three key elements for each country to implement to ensure multinational entities have a minimum 15% tax:

1. A “Qualified Domestic Minimum Top-Up Tax” (QDMTT), which collects a top-up tax on low-taxed domestic income,
2. The “Income Inclusion Rule” (IIR), where a parent company’s country can impose a top-up tax for any low-taxed income of a subsidiary in another country, and
3. The undertaxed profits rule (UTPR), which is a stopgap that allows allocation of the necessary top-up tax in the country where the subsidiary is located (i.e., low-tax jurisdictions).

Digital Services Taxes (DSTs) are taxes imposed by a particular country on the gross revenue of companies that provide digital services in that country. Generally, the basic premise is that these taxes allow countries to collect revenue from entities operating in the digital economy even if the entity does not maintain a physical presence in the country. Considering a disproportionate number of the largest digital companies are U.S.-based, the Trump Administration views these taxes as unfairly targeting U.S. multinational entities.

IRC Sec. 899

Seeking to address these foreign discriminatory taxes in a “tit-for-tat” manner, IRC Sec. 899 was a tool that would grant the U.S. Treasury Secretary wide latitude to impose retaliatory taxes on foreign persons that the current administration believes have enacted “discriminatory” or “extraterritorial” taxes. This included DSTs, diverted profits taxes (DPTs), and the UTPR.

As drafted, IRC Sec. 899 would impose additional taxes on “Applicable Persons” from foreign countries with “discriminatory” or “extraterritorial” taxes. “Applicable Persons” included:

• any government agency or instrumentality of “discriminatory foreign countries;”
• an individual tax resident of a discriminatory foreign country, other than a U.S. resident/citizen;
• foreign corporations, other than a U.S.-owned foreign corporation (e.g., CFC);
• a private foundation created or organized in a discriminatory foreign country;
• any non-publicly-held foreign corporation if it is held more than 50% owned (by vote or value) directly or indirectly by applicable persons, taking into account downward attribution and constructive ownership rules;
• any trust held by Applicable Persons; and/or
• any foreign partnerships, branches, or entities identified by the Treasury Secretary as residing in a discriminatory country.

This is a broad definition, meant to reach as many taxpayers associated with a foreign country as possible. IRC Sec. 899 would have been effective for tax years starting on or after January 1, 2027, and certain applicability ranges from 90 to 180 days after the Treasury designated a foreign country as a “discriminatory foreign country.” The increased tax started at 5% for the first year beginning January 1, 2027, and added another 5% for each year afterwards, capped at 15% in the aggregate. The affected U.S.-source income types are highlighted below.

IRC Sec. 899 contained a number of exceptions, including:

• foreign income taxes imposed on non-U.S. persons,
• withholding taxes on certain passive income, value-added tax (“VAT”),
• Goods and services tax (“GST”),
• sales and other consumptions taxes,
• personal property/estate/gift taxes, and
• taxes imposed on per-unit or per-transaction basis.

In addition, the bill clarified that it did not override current law exemptions for portfolio interest, original issue discount, bank deposit interest, and interest-related dividends paid by regulated investment companies.

G7 Agreement

The June agreement between President Trump and G7 members agreed to “fully exclude U.S. parented groups” from the UTPR and IIR requirements of Pillar Two but did not include any details. The two sides agreed to continue discussions about implementation and work to deliver a side-by-side system. On July 28, G7 countries supported this claim that the income Inclusion Rule (IIR) and UTPR would not apply to U.S.-parented groups. While this agreement was enough to drop IRC Sec. 899 from OBBBA, it had no concrete details, other than a promise to “continue discussions.”

What’s Next for IRC Sec. 899? 

The G7 Agreement is a high-level acknowledgment of aligned interests. The practical planning takeaways are going to be in the details of how the agreement is implemented. At the current moment, there are several important questions that need to be considered:  

• Does the exclusion from Pillar 2 legislation only apply to large U.S.-parented corporate groups? What about intermediate U.S. subsidiaries owned by non-U.S. corporate parents?
• Do other entity structures including individuals or partnerships benefit from this exclusion to Pillar 2?
• Would non-G7 countries who have already enacted Pillar 2 legislation (e.g., South Korea,) also exempt U.S. multinationals? Put another way, the G7 is not the OECD. While the G7 countries are members of the OECD, and have an outsized influence, they are not the entirety of the entity that proposed the Pillar Two rules. How will the remainder of the OECD choose to implement any eventual G7 agreement?
• Would this agreement lead to similar exemptions for U.S. multinational corporations for DSTs and DPTs as well?

This is a constantly evolving area of the law, with wide-reaching implications. The Trump Administration is including DSTs as a part of the tariff and trade negotiations with certain countries, and the G7 Agreement and possible OECD revisions are still to come. Further, if an agreement cannot be reached, the 899 Revenge Tax is seemingly ready to be revived. If you have a business that operates internationally, or a foreign business that operates within the United States, reach out to your EisnerAmper tax advisor to discuss.