Investment company institute warns section 899 of Trump's tax bill could deter foreign investment in U.S. markets
TIMESOFINDIA.COM | Jun 10, 2025, 17:55 IST
( Image credit : TIL Creatives, TOIGLOBAL )
The Investment Company Institute is raising alarms over a new tax bill provision that could drive foreign investors away from American markets. With Section 899 targeting foreign firms, there are concerns it might inadvertently stifle foreign investment in US stocks. Such a shift could lead to significant capital outflow, jeopardizing the stability of US businesses.
The Investment Company Institute (ICI) is lobbying Congress over concerns that a provision in President Donald Trump's tax bill, known as Section 899, could lead to foreign investors withdrawing investments from the U.S. Section 899, aims to penalize foreign-owned firms operating in the U.S. from countries with "unfair foreign taxes," but the ICI warns it could also impact most foreign investments in U.S. stock markets, potentially causing capital outflows and harming U.S. companies and investors. The ICI sent a letter to Senator Mike Crapo, chairman of the Senate Finance Committee, on June 5, expressing these concerns and suggesting the U.S. fund management industry could be "collateral damage."
The "One Big Beautiful Bill Act," which includes Section 899, passed through the U.S. House of Representatives in May and is currently being considered by the Senate.
Section 899 aims to introduce retaliatory tax measures against entities from countries that have levies such as the Digital Services Taxes and the OECD's global minimum tax rules.
If signed into law, it could impact investors from the European Union, the United Kingdom, Canada, Australia, and Switzerland, among others.
The tax would start at 5% and escalate by five percentage points annually to a maximum of 20%, on top of existing taxes, which vary by country and tax treaties.
That could dent returns for foreign investors in U.S. equities.
The ICI suggests that the U.S. fund management industry, which has collectively invested around $18 trillion in U.S. stock markets, would be "collateral damage" due to the impact of Section 899.
"We do believe, however, that the current drafting of proposed section 899 should clarify its scope and avoid discouraging foreign investment in US equity markets through 'investment funds' such as US mutual funds and ETFs and their foreign counterparts (e.g., UCITS funds)," the ICI said.
The letter to Senators goes on to say, "section 899 would penalize these funds and their shareholders by taxing passive income from US equity investments. To this end, investment funds would be collateral damage to the intended focus of section 899."
Funds typically charge fees as a percentage of assets under management, and a withdrawal by foreign investors, over Section 899 concerns, could lead to lower earnings for the investment management firm.
The Senate Finance Committee declined to comment, and Senator Mike Crapo's office did not respond to CNBC's request for comment.
Foreign investors own $19 trillion in the U.S. stock markets, $7 trillion in U.S. government bonds, and $5 trillion in U.S. credit, according to data compiled by Apollo Global Management.
The ICI said it's largely in support of the U.S. government's attempt to "protect US business interests overseas and to address discriminatory foreign taxes."
However, it cautions that the current draft of the bill does the opposite.
"Some foreign governments may actually cheer this capital flight from the United States because it benefits their local equity markets, which is not the behavioral incentive that Section 899 seeks to achieve," it said.
Yuri Khodjamirian, chief investment officer for Tema ETFs, said investors in Europe who are focused on dividend-distributing U.S. companies would be "thinking quite carefully" about their holdings at this stage.
"If suddenly you have to pay tax on that income, why would you hold that?" Khodjamirian questioned.
Tema ETFs runs the American Reshoring ETF that is available to both U.S. and foreign professional investors.
Tax experts suggest earnings paid out to foreign investors are more likely to be hit by Section 899 than capital gains and other methods of shareholder distributions.
The Tema ETFs investment chief cautioned that the impact on the U.S. equities market would be relatively minimal as U.S. companies, say in the , are typically not known for their dividends.
"In the US, dividend yields are quite low. There's not a lot of companies paying. And most of the capital gets returned as share buybacks," Khodjamirian told CNBC.
"Is that actually going to be that big of an issue then?"
The "One Big Beautiful Bill Act," which includes Section 899, passed through the U.S. House of Representatives in May and is currently being considered by the Senate.
Section 899 aims to introduce retaliatory tax measures against entities from countries that have levies such as the Digital Services Taxes and the OECD's global minimum tax rules.
If signed into law, it could impact investors from the European Union, the United Kingdom, Canada, Australia, and Switzerland, among others.
The tax would start at 5% and escalate by five percentage points annually to a maximum of 20%, on top of existing taxes, which vary by country and tax treaties.
That could dent returns for foreign investors in U.S. equities.
The ICI suggests that the U.S. fund management industry, which has collectively invested around $18 trillion in U.S. stock markets, would be "collateral damage" due to the impact of Section 899.
"We do believe, however, that the current drafting of proposed section 899 should clarify its scope and avoid discouraging foreign investment in US equity markets through 'investment funds' such as US mutual funds and ETFs and their foreign counterparts (e.g., UCITS funds)," the ICI said.
The letter to Senators goes on to say, "section 899 would penalize these funds and their shareholders by taxing passive income from US equity investments. To this end, investment funds would be collateral damage to the intended focus of section 899."
Funds typically charge fees as a percentage of assets under management, and a withdrawal by foreign investors, over Section 899 concerns, could lead to lower earnings for the investment management firm.
The Senate Finance Committee declined to comment, and Senator Mike Crapo's office did not respond to CNBC's request for comment.
Foreign investors own $19 trillion in the U.S. stock markets, $7 trillion in U.S. government bonds, and $5 trillion in U.S. credit, according to data compiled by Apollo Global Management.
The ICI said it's largely in support of the U.S. government's attempt to "protect US business interests overseas and to address discriminatory foreign taxes."
However, it cautions that the current draft of the bill does the opposite.
"Some foreign governments may actually cheer this capital flight from the United States because it benefits their local equity markets, which is not the behavioral incentive that Section 899 seeks to achieve," it said.
Yuri Khodjamirian, chief investment officer for Tema ETFs, said investors in Europe who are focused on dividend-distributing U.S. companies would be "thinking quite carefully" about their holdings at this stage.
"If suddenly you have to pay tax on that income, why would you hold that?" Khodjamirian questioned.
Tema ETFs runs the American Reshoring ETF that is available to both U.S. and foreign professional investors.
Tax experts suggest earnings paid out to foreign investors are more likely to be hit by Section 899 than capital gains and other methods of shareholder distributions.
The Tema ETFs investment chief cautioned that the impact on the U.S. equities market would be relatively minimal as U.S. companies, say in the , are typically not known for their dividends.
"In the US, dividend yields are quite low. There's not a lot of companies paying. And most of the capital gets returned as share buybacks," Khodjamirian told CNBC.
"Is that actually going to be that big of an issue then?"