US response to discriminatory or extraterritorial tax regimes
The US is considering various approaches to respond to foreign countries that are considered to impose discriminatory or extraterritorial taxes against US citizens or corps.
Cross-border Tax Talks
April 08, 2025
Withholding retaliation? US Sections 891 and 899
Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Tom Patten, a London-based US International Tax Partner at PwC. Tom focuses on inbound investment into the U.S. and returns to the podcast for a timely discussion on Sections 891 and 899, two lesser-known but increasingly important provisions in the international tax landscape. Doug and Tom discuss the resurgence of Section 891 in light of a January 2025 executive order that directs Treasury to identify discriminatory or extraterritorial foreign taxes. They cover how Section 891 operates, potential implications for non-US citizens, and its interaction with treaties. The episode then turns to proposed Section 899 and a new House proposal aimed at modifying the base erosion and anti-abuse tax (BEAT). Tom and Doug examine how these retaliatory measures differ, overlap, and might evolve. They close with practical advice for multinational taxpayers navigating an uncertain legislative environment and the future of Pillar Two negotiations.
- 01:10 – Doug welcomes Tom Patten in Prague and they talk baseball
- 02:50 –Administration’s Executive Order to investigate discriminatory or extraterritorial taxes pursuant to Section 891
- 03:50 – What is Section 891? What is it’s history?
- 06:10 – How does Section 891 operate?
- 08:50 – Who would Section 891 apply to?
- 9:50 – Are dual citizens subject to this rule?
- 10:25 – Does this rule apply to withholding taxes?
- 12:50 – How does Section 891 reconcile with treaties? Analysis of ‘later-in-time' rule
- 15:40 – February 2025 executive order expands scope to digital services taxes
- 16:20 – Back to treaties: Considering context in which these provisions are invoked
- 17:10 – Pillar Two UTPR meets DST: Are the issues being conflated?
- 20:40 – Enter Section 899: A scalpel to 891’s sledgehammer
- 24:10 – How does Section 899 operate? Who does it cover? How does it compare to Section 891?
- 26:40 – Complexity of withholding vs. substantive tax under 899
- 28:00 – Section 899 definitions of extraterritorial and discriminatory taxes
- 30:25 – The House Bill’s proposed BEAT modifications: Focus on UTPR
- 33:05 – Cost of goods sold would become base-eroding: Is it intentional?
- 34:35 – Why use BEAT instead of Sections 891/899?
- 36:50 – Practical advice: Taxpayers should engage with US policymakers
- 37:55 – Individual and corporate awareness and advocacy
Speakers
International Tax Services Global Leader, PwC US
Tom Patten
Partner, PwC US
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