by Matthew Bowles, strategic partnerships manager at the Institute of Economic Affairs
When I wrote this week in City A.M. about Donald Trump’s ‘One Big Beautiful Bill’, I wanted to draw attention to the impact a particular provision could have for British investors and businesses.
With the Bill edging closer to a 4th July deadline in the US Senate, the UK must start taking Section 899 of the Bill seriously.
At its core, this part of the Bill is about punishing countries that Washington sees as “tax hostile”, a label that now includes the UK, thanks to our Digital Services Tax (DST). Introduced in 2020, the DST aimed to level the playing field by taxing large tech companies, many of them American, based on user location rather than physical presence. However, the Trump administration has long viewed it as discriminatory, with Section 899 being seen as a retaliatory response.
But what does Section 899 do? It strips away the preferential tax rates granted under existing US-UK treaties. British investors who currently benefit from withholding tax rates of 5 per cent or 15 per cent on dividends, interest, and royalties could face a flat 30 per cent rate instead. This would result in foreign investors receiving lower returns on their investments after tax, alongside higher costs.
Worse still, a path is outlined for effective tax rates of up to 50 per cent on relevant US-sourced incomes. This is a dramatic reversal of decades of transatlantic tax cooperation.
This is a natural problem for large multinationals, as well as for ordinary investors, pension funds, private equity funds, and even firms with modest US exposure. In the name of political brinkmanship, Section 899 introduces uncertainty and discourages cross-border investment.
The US Treasury’s own data shows that global investors hold nearly $40 trillion in US assets. So, a move like this won’t just affect foreign investors; it will also repel the very capital that fuels the American market. In the US, business groups across various sectors have been sounding the alarm. It has been suggested that 8.4 million US jobs could be at risk.
The UK’s response must be measured, but proactive. There’s little to gain from escalating the situation, especially against a transactional negotiator like President Trump. Tit-for-tat tax measures would only deepen uncertainty and likely further erode prospects of cooperation.
It would be prudent for Sir Keir Starmer and Rachel Reeves to reassess the DST. There is some merit to the US view in analysing this as a tax that unfairly harms American companies. If Washington is serious about using tax treaties as leverage, then our own policies must also be viewed through a strategic lens.
There is also a wider point here. Governments are increasingly using blunt fiscal instruments to mitigate political pressures, which can ultimately undermine long-term competitiveness. This is while ignoring and not considering any knock-on effects that such policies may have. International cooperation on tax policy is weakening between advanced economies.
The UK should be at the forefront of resisting this drift. Only through negotiation can tax treaties be maintained to benefit investors and businesses alike. In the meantime, British investors and companies must start planning for the potential impact of this provision to avoid any unanticipated costs.
The fate of Section 899 is still uncertain. It may be watered down or removed. However, its existence is a warning and UK policymakers should treat is as such.
This was originally featured in City A.M.