News

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. 

• 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.

Contact 

News Archive

News

Tax Bill Update: Senate Text in Flux

June 24, 2025

Last week, the Senate Finance Committee released its draft of the One Big Beautiful Bill, which included a number of key changes to the text the House passed on May 22. 

• The most high-profile changes include reverting the state and local tax (SALT) deduction to $10,000, extending the time horizon on Inflation Reduction Act (IRA) energy tax credits, and expanding reductions to Medicaid. 
• The Section 899 foreign “revenge tax” saw some changes, which are covered in detail in the story above. 
• A Steptoe LLP summary chart of significant provisions of the House tax bill and the draft Senate tax bill is available here. 

Go deeper: Senate Finance Chairman Mike Crapo (R-ID) had made permanency a key focus of business provisions in the draft, which is supported by Majority Leader John Thune (R-SD). Highlights include:

• Makes permanent the 199A pass-through deduction at 20%. While the House made the provision permanent, it also increased the deduction to 23%. 
• Makes permanent full expensing for domestic research and development. 
• Makes permanent full expensing for new capital investments, like machinery and equipment.
• Restores and makes permanent the EBITDA standard for 163(j) interest deductibility. 
• Permanently renews and enhances the Opportunity Zone program.

Yes, but: The changes to SALT, IRA, and Medicaid have drawn opposition from some House and Senate members and may imperil the bill’s timeline. 

While the Senate SALT provision is viewed as a placeholder for further negotiation, the $40,000 House-passed number was critical to getting Blue-district Republicans to support the bill. Two members of the SALT Caucus, Rep. Young Kim (R-CA) and Rep. Andrew Garbarino (R-NY), released a statement criticizing the Senate language: 

Contact 

News Archive

News

House Bill Would Solve 15C2-11 Issue for Fixed-Income

June 24, 2025

Bipartisan House legislation introduced on June 13 would permanently exempt fixed-income securities from unnecessary and duplicative information requirements under SEC Rule 15c2-11.

Why it matters: The SEC has issued exemptive relief and a no-action letter for public and private fixed-income securities after a 2021 staff interpretation said the rule, originally finalized in 1971, required broker-dealers to verify certain public information. 

• CREFC continues to seek a permanent solution that clarifies the so-called penny stock rule does not apply to fixed-income securities, as future SEC leaders could easily rescind the exemptive relief and no-action letter. 
• Congressman Troy Downing (R-MT-02) and Congressman Cleo Fields (D-LA-06) introduced H.R. 3959, the Protecting Private Job Creators Act, which would exempt all fixed-income securities, including public fixed-income securities and 144A bonds.
• The legislation would provide a statutory basis for relief. The SEC could also conduct a rulemaking to clarify the fixed-income treatment.

What they’re saying: CREFC and 10 other trade organizations endorsed the legislation and urged Congress to pass it. According to CRE Finance Council President and CEO Lisa Pendergast, “the misapplication of 15c2-11 has been a looming threat to liquidity.” Ms. Pendergast further noted:

Contact 

News Archive