Senate Excises the OBBBA’s ‘Revenge Tax’

If you have been trying to follow the twists and turns of US tax legislation over the last week, you may be feeling a bit whiplashed—and not just because of the Senate’s parade of amendments to the “One Big, Beautiful Bill Act” (OBBBA), which squeaked through the Senate Tuesday after Vice President JD Vance broke a 50-50 tie. Last Thursday, Treasury Secretary Scott Bessent asked Congress to remove the OBBBA’s Section 899, saying a new global agreement on corporate taxation negated the need for a potential “revenge tax” on nations singling out US Tech firms for special taxation. But just one day later, President Trump walked away from trade talks with Canada, citing that nation’s digital services tax. That tax then died Sunday. So what is going on, and why was the digital services duty even still on the table after Thursday’s agreement? We have you covered.

For background, in 2021 the Organization for Economic Cooperation and Development (OECD) brokered a deal to install a “global” minimum corporate tax rate, with the Biden administration’s support. Many countries wished to crack down on multinational companies seeking tax havens (e.g., Ireland), so G7 nations agreed on a global minimum tax rate of at least 15%—regardless of the multinationals’ headquarters location. This agreement included another levy on the largest multinationals, forcing them to pay taxes to countries based on where the goods or services were sold (regardless of their physical presence in that country).

These tax measures affected America most because of its Tech giants, and nearly 140 countries supported the deal. However, new taxes fall under the realm of national legislatures, and America’s Congress never ratified the agreement. Hence, it wasn’t effective globally, but some nations pushed forward with digital services taxes (DSTs), a bespoke solution to get what they viewed as their fair share of economic activity taking place within their borders. The UK, France and Switzerland have implemented them, and Canada recently advanced one as well—which was on the verge of taking effect.

Fast forward to 2025, and the Trump administration sought to address “unfair” levies, including the OECD’s “undertaxed profits” rule and DSTs. Enter Section 899, popularly described as a “revenge” tax on foreign corporations and investors from nations imposing “unfair” duties on US multinationals. Many worried the OBBBA’s revenge tax would discourage investment in the US and worsen already tense trade relations.

But as we wrote recently, Section 899 wasn’t as draconian as advertised. It didn’t immediately create new taxes. It just created the power for the Executive Branch to do so, which smelled like a negotiating tactic. Now it seems the mere threat worked, as Bessent announced an agreement exempting US-based companies from the 15% minimum corporate tax rate (contingent on Congress removing the “revenge tax”). He recommended, and the Senate did, strike Section 899 from the bill. While this is a positive reducing tax uncertainty, it doesn’t fix all the administration’s gripes. The G7 agreement applied to global minimum taxes. Single-country DSTs remain.

Well, except Canada. It was set to start collecting DST on June 30, retroactive to January 2022. But that prompted the Trump administration’s walking away from Canadian trade talks on Friday. Lo and behold, Canadian Prime Minister Mark Carney U-turned on Sunday, canceling the DST, which apparently has jumpstarted those trade talks anew.

From an investment perspective, we didn’t think Section 899 was some huge, fundamental negative, but it weighed on sentiment and created uncertainty. With it now off the table, investors can move on. DSTs remain a bee in the administration’s bonnet, clearly, and still influence trade talks—which we saw firsthand with Canada over the weekend. But not every trade negotiation where DST was a factor went to the brink. Digital services levies were part of trade talks with the UK, and a final agreement on whether and how Britain will amend its tax is still pending, but it didn’t prevent a deal with the US on other things. As for the broader implications of the G7 agreement, it helps wind down an issue preoccupying investors since 2021, albeit one that was slow-moving and had long since faded into the structural backdrop. We now have more clarity on the global corporate tax landscape.

For investors, it is worth recognizing policy uncertainty—whether related to taxes or the shifting sands of tariff talks—has been and still is a headwind this year. We don’t dismiss the economic implications or threat to growth, particularly from ongoing tariff uncertainty—which the Canada episode is emblematic of. That is a big reason why recession remains possible this year, in our view. But markets also don’t wait for everything to be resolved. They price in what looks probable in the moment and move on. We suggest investors also refrain from waiting for tax finality—waiting for Godot may be more successful.