Section 899 Update
June 24, 2025
Real estate market participants and other industries with a global investor base are concerned about Section 899, a provision that would impose retaliatory income taxes on foreign investments and companies in the U.S.
- CREFC joined other real estate industry groups in raising concerns about the provision in the House-passed One Big Beautiful Bill (OBBB) to Senate leadership. In a letter to lawmakers, the groups suggested changes to exempt non-controlling foreign debt and equity investments from the retaliatory taxes. Click here for the letter.
- A CREFC fact sheet on the provision is available here.
Background: The House Version of OBBB contains a provision—Section 899—that would allow Treasury to impose annual income tax increases of 5% on any foreign individual, government, corporation, trust, foundation, and other similar entities in response to unfair tax treatment by a foreign country against the U.S.
- The provision responds to unfair taxes by increasing the rate of tax generally applicable to certain taxpayers connected to the foreign jurisdiction. The legislation describes a number of per se unfair taxes and also gives the U.S. Treasury Secretary authority to designate additional unfair taxes.
- The increased rate in the House version is capped at 20%, and the Senate is at 15%, which is in addition to any existing tax the entity pays. The effective tax rate could increase to 45% or 50% for foreign investors or companies.
- The Senate version would delay implementation of the tax until at least 2027.
- The Senate version includes an explicit 899 exemption for “portfolio interest,” which excludes many debt securities.
- The Senate version of the bill focuses the major retaliatory increases on countries with Undertaxed Profit Rules (UTPR). Countries with only discriminatory or other unfair taxes, like the digital service tax, would be subject to a super Base Erosion and Anti-Abuse Tax (BEAT).
Impact: The provision could chill investment in U.S. real estate debt and equity through a combination of increased costs and uncertainty as to whether the tax will apply to certain countries.
Here are the major concerns identified by CREFC members:
- U.S. Real Estate: Potential chilling effect on cross-border capital flows into CRE, which includes $213 billion in the last five years and more than 10% in transaction volumes. Some estimates project foreign investors would need a 15% change in price to account for tax changes at the maximum rate.
- Foreign banks and other lenders: Additional tax on non-U.S. lenders providing financing to U.S. borrowers.
- Foreign investors in U.S. funds: Additional tax on non-U.S. investors in funds, including debt funds, providing financing and capital to U.S. borrowers.
- Securitized products: Investors in CMBS may be exempt from 899 under the portfolio interest exemption, but further analysis is being conducted on the scope of the exemption. There could be structures that exclude or include securitization products.
- U.S. Borrowers: CRE loans frequently include provisions in which the borrower contractually agrees to bear the risk of changes due to international tax law. For existing loans, any additional tax imposed under Section 899 would be the responsibility of the borrower, typically in the form of a gross-up payment to the foreign lender.
What’s next: CREFC will continue to engage with policymakers as the Senate will be considering the OBBB over the next few weeks.
Contact David McCarthy (dmccarthy@crefc.org) with questions or to get involved on this issue.