American fund managers are lobbying Congress over a provision tucked inside President Donald Trump’s tax bill that they say could lead to foreign investors “quickly” pulling investments out of the U.S.
“If sustained selling by foreign investors depresses US equity markets, this would harm both US companies and investors.”
If signed into law, it could impact investors from the European Union, the United Kingdom, Canada, Australia, and Switzerland, among others.
That could dent returns for foreign investors in U.S. equities.
To this end, investment funds would be collateral damage to the intended focus of section 899.”
American fund managers are urging Congress to change a clause in President Donald Trump’s tax bill that they claim could cause foreign investors to “quickly” withdraw their money from the United States. A.
The U.S. passed the “One Big Beautiful Bill Act,”. S. . To penalize foreign-owned companies operating in the United States, the House of Representatives will meet in May. S. . and that come from nations that’re subject to “unfair foreign taxes” under Section 899. The Senate is currently debating it.
Fund houses in the United States are represented by the Investment Company Institute (ICI). A. is urging Congress to amend the bill because it warns that the majority of foreign investments in the United States will be impacted by it in its current form. A. stocks, based on records that CNBC was able to view.
“To avoid the impact of section 899, portfolio investors are likely to retreat quickly from US equities, leading to capital outflows from the United States,” the ICI wrote July 5 in a letter to Senate Finance Committee chairman Senator Mike Crapo. Both US businesses and investors would suffer if foreign investors’ persistent selling caused the US equity markets to decline. “..”.
What is the function of Section 899?
Introducing retaliatory tax measures against entities from nations that impose levies, such as the Digital Services Taxes and the OECD’s global minimum tax regulations, is the goal of Section 899. It may affect investors from the European Union, the United Kingdom, Canada, Australia, and Switzerland, among other countries, if it becomes law.
In addition to current taxes, which differ by nation and tax treaties, the tax would begin at 5% and increase by 5% per year up to a maximum of 20%. That might reduce the returns for overseas investors in the United States. S. shares.
unintended influence.
Additionally, the ICI recommends in the letter that the U. S. The fund management industry has made approximately $18 trillion in investments in the United States. S. stock markets would be considered “collateral damage” as a result of Section 899’s effects.
Yet, we think that the way proposed section 899 is currently being drafted should make clear its scope and refrain from discouraging foreign investment in US equity markets through ‘investment funds’ like US mutual funds, exchange-traded funds, and their international counterparts (e.g. 3. funds from UCITS),” the ICI stated.
“By taxing passive income from US equity investments, section 899 would penalize these funds and their shareholders,” the letter to senators continues. Investment funds would therefore be collateral damage to section 899’s intended focus. “,”.
Due to Section 899 concerns, funds usually charge fees as a percentage of the assets they manage. If foreign investors withdraw their money, the investment management company may see a decline in earnings.
CNBC’s request for comment was not answered by Senator Mike Crapo’s office, and the Senate Finance Committee declined to comment.
In the United States, foreign investors own $19 trillion. S. $7 trillion in the U.S. stock markets. A. Treasury bonds, as well as $5 trillion in U.S. S. in accordance with information gathered by Apollo Global Management.
Largely in favor of the U.S., according to the ICI. S. . in an effort to “address discriminatory foreign taxes and protect US business interests abroad.”. It warns, though, that the bill’s current draft does the exact opposite.
Because it helps their local equity markets, some foreign governments may actually applaud this capital flight from the US, which is not the behavioral incentive that Section 899 aims to accomplish, the report stated.
How come you would hold U? A. stocks?
According to Tema ETFs’ chief investment officer, Yuri Khodjamirian, European investors who prioritize dividend-paying U.S. S. . At this point, businesses would be “thinking quite carefully” about their holdings.
“Why would you hold that if you suddenly had to pay tax on that income?” Khodjamirian asked. The American Reshoring ETF is offered by Tema ETFs and is accessible to both U.S. A. and foreign professionals who invest.
According to tax experts, Section 899 is more likely to apply to earnings distributed to foreign investors than to capital gains and other shareholder distribution methods.
The chief investment officer for Tema ETFs warned that the effect on the U. S. . The market for stocks would be as small as the U.S. A. Businesses, such as those in the SandP 500, are generally not renowned for paying dividends.
The dividend yield is very low in the United States. Few businesses are making payments. Additionally, the majority of the money is repaid through share buybacks, Khodjamirian told CNBC. “Then, will that really be that big of a problem?”.
