PensionsEurope has written to the US Senate to express serious concerns over tax measures included in president Donald Trump’s budget reconciliation legislation, the One Big Beautiful Bill Act.
Its concerns relate to Section 899 of the proposed reform, which foresees an increase in the rate of US federal income tax on income generated on US investments by residents of a “discriminatory foreign country”.
According to lawyers at Eversheds Sutherland, the definition of a “discriminatory foreign country” is such that a large number of countries are expected to be affected, including the UK, and all of the EU countries.
It said that non-US persons with investments or activities in the US could be subject to a US tax increase of 5% on gross income generated from such investments or activities beginning in 2026 and increasing by 5% annually up to a maximum 50% rate.
Addressing members of the US Senate’s finance committee, PensionsEurope said: “A blanket application of Section 899 withholding taxes on dividend income would erode retirement income security for millions and could diminish the US market’s attractiveness as a destination for long-term global capital.”
Given the US stock market’s weight in global equities, Section 899 could significantly alter portfolio allocations, the European pension fund association said.
“Proposals suggesting withholding rates as high as 50% on US dividends for investors from ‘discriminatory jurisdictions’ are financially unsustainable for pension funds,” PensionsEurope wrote.
“Over time, this could lead to capital outflows, reducing foreign participation in US equity, and may impact broader US economic indicators.”
Explicit carve-out
It is calling for the Senate to amend Section 899 to introduce an explicit carve-out for pension funds, and make sure that a portfolio interest exemption is “unambiguously stated”.
It is arguing that US pension funds are not within the scope of the “foreign unfair taxes” that Trump’s law is targeting, and that “[b]ased on the principle of reciprocity, we would have expected that European pension funds would likewise not be targeted by Section 899”.
PensionsEurope also suggested the Senate delay the effective date of the legislation by one year, to 1 January 2027.
The US House of Representatives voted in favour of the One Big Beautiful Bill Act on 22 May. The Senate is expected to vote on the legislation on 23 June.
PensionsEurope is working on the issue with the help of the World Pension Alliance.
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Susanna is ESG Editor at IPE, steering the publication's coverage of responsible investment news and analysis. She has a penchant for EU regulation, which also sees her covering EU pensions policy, and is a bit of a newshound so may drift into other areas, too.View full Profile
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