The proposed U.S. tax bill, dubbed the “One Big Beautiful Bill Act” by the Trump administration, is expected to have ripple effects across markets and the economy. In particular, investors have zeroed in on Section 899 of the bill, which seeks to impose a progressive tax burden of up to 20% on U.S. income earned by foreign entities and individuals — specifically those whose home countries have tax laws the U.S. deems unfair.

Section 899 would also introduce a provision dubbed the “Super BEAT,” which subjects foreign multinational companies in the U.S. to a more stringent base erosion anti-abuse tax (BEAT). While the House bill included a “Super BEAT” rate of 12.5% for certain corporations, the Senate has proposed a 14% rate for all taxpayers. This could result in effective tax rates exceeding 100% or more for U.S. subsidiaries of foreign companies.

While the legislation could raise $52 billion in tax revenue over the next 10 years, it would also likely make U.S. assets less attractive. “America’s appeal as a destination for capital lies in its openness, rule of law and availability of high-quality assets. The Trump administration’s goal of driving more foreign investment onshore could be undermined by the introduction of ‘soft’ capital controls on income earned by foreign entities and individuals, souring foreign investor appetite on the margin,” said Dubravko Lakos-Bujas, head of Global Markets Strategy at J.P. Morgan.

What are the ramifications for the economy, equities, FX, credit and rates? 

Equities: Bifurcation across sectors and industries

Currently, roughly 20% of U.S. equities are owned by foreign investors. If Section 899 is enacted, it could drive bifurcation among sectors and industries, with equities at the corporate and market structure level more directly impacted. “For example, asset managers and financial services could be more sensitive to a slowdown or reversal in foreign investment flows,” Lakos-Bujas said.

The legislation could also impact shareholder payouts. At 1.3% (versus 3.1% for the rest of the world), the U.S. has a less attractive relative dividend yield given its preference for share buybacks in shareholder payouts. Despite the 1% buyback tax in place since the passage of the Biden-era IRA, the implementation of Section 899 could marginally fuel the corporate preference for buybacks over dividends.

The direct impact of Section 899 could also be more pronounced for U.S. subsidiaries of foreign companies. “If Section 899 becomes widely implemented without a negotiated solution, we could easily imagine a scenario where U.S. subsidiaries of foreign corporations increasingly build cash positions, while the foreign parent company issues debt in its local jurisdiction to access liquidity without a taxable event,” Lakos-Bujas said. In addition, the “Super BEAT” could make it punitive for subsidiaries to make interest payments (or other payments) to their parent companies, as such payments would be non-deductible.

Overall, Section 899 could favor large U.S. multinationals in the medium to long term, while high-dividend sectors and industries could be disadvantaged. Given that much is still unknown, however, markets are unlikely to start pricing in an adverse scenario without a clearer sense of the specifics. “The important takeaway is that equity investors have yet to position for this risk, as it still faces hurdles to implementation,” Lakos-Bujas said. 

FX: More headwinds for the dollar

The passage of Section 899 could add to downside risks for the U.S. dollar, although there may be some offsets.

“A core component of our bearish dollar view this year has been the ongoing moderation of U.S. exceptionalism. But structural factors, including concerns stemming from U.S. economic, trade and FX policy uncertainty, can also contribute to dollar weakness — and may already be reflected in select measures of USD risk premium,” explained Meera Chandan, co-head of Global FX Strategy at J.P. Morgan. “By implicitly raising the cost of investing in the U.S. for foreign entities, alongside new uncertainty around policy amid global investors’ ongoing reconsideration of the attractiveness of holding dollars, it stands to reason that Section 899 could add to downside USD pressure.”

There are two possible channels of direct transmission from Section 899 to the dollar: portfolio investments and FDI. But with interest earned on fixed-income securities like Treasuries exempted from the rule, there are offsets that suggest portfolio investments are unlikely to be an active channel for FX.

More relevant for the dollar would be any behavioral shift in net FDI, all else being equal. However, tariffs could eventually mitigate some of the risk from this channel. “Overseas corporates will need to do the calculus of what is economically more viable — exporting to the U.S. with higher tariffs, or investing in the U.S. but with higher taxes. This will be an evolving issue and could slow FDI in the near term, and where this settles in the longer run will be relevant for the dollar,” Chandan noted.

Finally, there could be further considerations for FX if several major developed markets (DMs) are added to the enforcement list — Canada for digital services taxes (DSTs) and Australia for diverted profits taxes (DPTs), for example. “Depending on the context, this may create perceptions of relative winners and losers in a way that manifests in pockets of FX relative-value risk premium,” Chandan added. 

Rates: Limited direct impact on Treasuries

In U.S. rates, the question on most investors’ minds is whether Section 899 will decrease foreign demand for Treasuries. “We believe this provision will have a minimal direct impact on foreign Treasuries holdings, but any perception that the administration could make U.S. asset investments more punitive to hold — in combination with concerns about structurally higher budget deficits and heightened trade tensions — could compound the structural trend toward higher term premium already in train,” said Jay Barry, head of Global Rates Strategy at J.P. Morgan.

The direct impact on Treasuries will likely be minimal for a couple of reasons. Firstly, Section 899 will not apply to the portfolio interest exemption (PIE), meaning that interest earned on Treasuries and other U.S. debt holdings by applicable foreign investors will not be subject to the retaliatory tax surcharges. Secondly, Treasuries held by foreign central banks are also shielded from tax implications by Section 895 of the Internal Revenue Code.

Already, overall foreign ownership share of the Treasury market is on the wane, having peaked at 50% during the global financial crisis but falling to 30% as of early 2025. “Foreign private ownership’s share of the market has been more stable, but as yields have risen across DM government bond markets in recent years, Treasuries have become relatively less attractive for private investors abroad,” Barry observed.

However, several countries likely to be targeted by Section 899 are among those with the largest Treasury holdings. Investors in Europe, including the U.K. — which are likely to face a higher tax rate as a result of DSTs — currently own $2.9 trillion and $0.7 trillion long-term Treasuries, respectively. Japan, which is likely to face retaliatory taxes due to its undertaxed profits rules (UTPRs), holds $1 trillion long-term Treasuries, as per a recent Treasury International Capital (TIC) report. As such, demand for Treasuries from these regions could be indirectly affected.

In addition, an important objective of Section 899 is to increase tax revenue, which on margin is supportive for the Treasury market. “However, as we consider the near-term implications for Treasury issuance, the $12.6 billion deficit reduction in the 2026 financial year is fairly negligible in the context of a $2.25 trillion deficit forecast,” Barry said. “Moreover, any positive implications in the form of deficit reduction must be weighed against the potential for a further deterioration in foreign demand.”

Overall, if Section 899 is passed into law in its current form, there would likely be limited near-term impact on Treasury yields. “However, we expect the share of the Treasury market owned by foreign investors to continue declining over time, contributing to a further rise in term premium along the yield curve,” Barry said.